By Quentin Fottrell
Faced with a falling market share and bleak profit outlook, analysts say Toyota is reluctantly increasing incentives for customers.
The Japanese carmaker today slashed its profit outlook by more than half for the fiscal year ending next March. “Due to the impact of extreme yen appreciation and the Thai flooding, we had to downgrade our earnings forecast,” Satoshi Ozawa, Toyota’s executive vice president and chief financial officer, said Friday. The company also cut its global vehicle sales outlook to 7.38 million vehicles, down from a previous forecast of 7.60 million, but still above last year’s 7.31 million.
What’s bad for the company’s bottom line may be welcome news for car buyers. Though much of the auto industry is steering away from incentives, Toyota has little choice but to rev up its deals, analysts say. Traditionally conservative when it comes to giving customers cash-back on cars, Toyota has, with little fanfare, increased the average incentive per vehicle. “Their incentives are starting to increase, which effectively means the transaction prices for consumer will drop,” says Larry Dominique, auto analyst for TrueCar.com. Until the company reduces the amount of cars it produces in Japan, he says it will have to offer more incentives like cash-back and even lower APRs.
Toyota’s incentive per vehicle has risen 1.8% from January to November to $2,017, while the U.S. car industry has pulled back on incentives by more than 8% to $2,505 during the same period, according to data collected by TrueCar.com.
Toyota may also scale back the frills on some of its newer models, says Bill Visnic, analyst and senior editor at Edmunds.com. “We will likely see more cars with fewer interior features and materials with slightly less quality, he says. “We’ve already seen delays on upgrades.” He says other car manufacturers have also started cutting back on interior features like automatic dimming rearview mirrors, plush leather furnishings and blue tooth phone connections.
The company faces a tough balancing act, these analyst say: It must improve profits while also trying to win back customers. “Toyota’s incentives have been like a yo-yo,” Visnic says. “They’ve been up, they’ve been down and they’ve been flat.” He says the company’s U.S. market share was 13.9% in November 2011 down from 14.8% in November 2010, and has fluctuated from 15.5% to 10.2% over the last 12 months. “It’s definitely on a downward trend,” Visnic says.
For its part, Toyota says it’s steadily increasing supply since the Japanese earthquake and floods in Thailand earlier this year — and without compromising on quality. “We have a number of new products on the way including the Camry and Prius V,” says Toyota spokesman Steve Curtis. “It puts us into very good shape going into 2012.” But those in the market for a new car may be pleased to hear he doesn’t rule out even more incentives: “Historically, our incentives are much lower than the rest of the industry. That being said, we do have competitive deals out there.”