Incentives Boost Sales, but Toyota Brand Still Challenged

Against Impressive Odds, Sales Soared 41% in March, Yet Marketer Has Long Way to Go Before It's Fully Recovered

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NEW YORK ( -- At first glance, it's one for the marketing record books.

After an unprecedented recall of 2.3 million cars in January, untold numbers of negative headlines in February and a $16.4 million fine levied by the National Highway Transportation Safety Administration for "knowingly hiding" safety concerns from regulators, Toyota Motor Corp. reported a 41% sales surge for March -- well ahead of the industry's 24% gain for the month.

Toyota: what cost?
By Toyota's count, the recalls will cost it $2 billion. But that only covers the floor mat and sticky-pedal actions and ignores the spiraling incentives, ad bills and wall of lawsuits in the last two months. And there's the $16.4 million fine imposed by the U.S. government. Factoring in all that could put the total bill above $4.43 billion.
-- Hans Greimel,
Automotive News
According to auto-industry research firm data, Toyota virtually made up in March the sales it lost in January and February. Toyota sold 186,863 vehicles last month, almost as many as the combined 198,823 vehicles sold in January and February.

But the impressive bump, credited to the brand's almost fanatical consumer base and bargain hunters lured in by hefty incentives, doesn't necessarily indicate the automaker has dodged the bullet.

"I don't think Toyota is quite out of the woods yet," said Scott Painter, CEO of "They'll still be the dominant car marker in the business, but I don't think you're going to see dramatic growth in market share."

Jessica Caldwell, senior analyst with, said that while there's clear brand damage, it's not as big as many initially thought: "People are kind of over the story and not as interested in Toyota and their trials and tribulations. All the news now is on health care and what not. Toyota got lucky."

That optimism is a marked departure from the doom and gloom that hovered over the company two months ago. It took more than a week for Toyota to respond with any type of communications plan to news of the recalls and pedal-sticking issues that caused unintended acceleration. The automaker failed to follow the crisis textbook written by Johnson & Johnson in 1982 after the Tylenol scare, and updated in May of 2000 when Ford CEO Jacques Nasser went before the media after discovering a series of Firestone tire blowouts that caused rollover accidents in the Explorer.

But when it did respond, Toyota went right to its bread and butter: its customers. The company took out full-page ads in major newspapers and produced feel-good TV spots featuring dealers, mechanics and owners.

"They were late to getting to it, but once they went after the marketing component it set the right tone and comforted their loyal buyers," said Peter DeLorenzo, author of the book "The United States of Toyota" and a former auto exec who runs "They're happy with Toyota and not wavering."

Indeed, some of the rebound has to do with Toyota's cultish fan base. As Ad Age reported last month, the company grew its Facebook fan base more than 10% between the Jan. 21 recall announcement and late February.

In the bank
"They've been able to spend credits from their bank of goodwill," said Bryan Laviolette, a Michigan-based automotive journalist and the founder of car-enthusiast site "For a long time they could do no wrong, and you earn some credit with people for having that kind of reputation. But eventually the bank will be empty. The next couple of months will be telling."

Toyota, which was already coming off its first-ever year of losses in 2009, will almost certainly lose money in 2010. But year-over-year sales were only down 16% in January and 9% in February -- far lower than expectations, particularly in February after news of the recall went worldwide. And then there was the big jump in March.

What will also be telling is how long Toyota will sustain the incentives that are driving its growth. The marketer instituted no-interest loans and discount leases, zero-percent financing and a complimentary two-year maintenance program, programs that it announced last week will continue until May 3. Once those die off, it will still have some brand rebuilding to do.

"We saw a big response to those incentives in the beginning of March, but we also did see it die off as the month went on,"'s Ms. Caldwell said. "There is some question here in April if they'll be able to keep up that momentum."

The company is on pace to sell just 1.54 million vehicles in 2010, which would be down 13% from the 1.77 million it sold last year and down 41% from the 2.62 million it sold in 2007. Market share has fallen from an all-time high of 17% last year to 15.2% through the first three months of this year.

And the incentives are a risky strategy. "They have thrown the kitchen sink at incentives, but it's dangerous if you don't pull them out of the market soon enough," Mr. Painter said. "If you have an incentive on your car for too long, it becomes the baseline perception on that car. In 2005-06, the incentives were so great in the industry that when we finally had a dip in the economy, automakers had no place left to go."

According to TrueCar, Toyota's true cost of incentives per car totaled $847 in 2007. That number has skyrocketed to $1,967 per car sold through the first three months of this year.

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