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Toyota exec defends higher incentive levels in US
February 5, 2011 / 5:26 AM / in 7 years

Toyota exec defends higher incentive levels in US

* Toyota incentives now at two-thirds industry average

* Seven new or revamped Toyota brand products in US in ‘11

By Bernie Woodall

SAN FRANCISCO, Feb 4 (Reuters) - Toyota Motor Corp has increased incentives to lure buyers but its U.S. Toyota brand chief vowed on Friday that high resale and residual values will be maintained.

Bob Carter, Toyota brand sales chief in the United States, said higher incentives including a current program offering zero-interest financing does not signal a change in business strategy for the world’s biggest automaker.

“Our position on incentives has not changed. We use it as part of our strategy to address the competitive marketing environment and the inventory,” Carter told reporters on the sidelines of a J.D. Power & Associates auto industry conference.

Carter admitted that Toyota went from incentive levels that are about a third of the industry average to two-thirds of that average. Incentives lower the price of a car or truck but generally cut into profit margins for the automaker.

They also usually lower the residual value of those vehicles when they hit the used vehicle market.

Toyota’s incentives were a third of the industry average before the fall of 2009 when safety recalls that have reached more than 14 million worldwide began to plague Toyota’s reputation.

Toyota lost share in the U.S. market in 2010 as its sales fell 0.4 percent while the industry’s sales rose 11.1 percent, according to AutoData. It was the only major automaker in the United States to report a drop in sales last year.

“What you see us using is attractive interest rates and leasing as a competitive advantage,” said Carter. “We don’t do things like (large cash discounts), nor do you see 30 or 40 percent of our volume as fleet because one our core strengths is resale value, residual values.”

Carter said that U.S. consumers who buy a Toyota want to know that three years later the vehicle will have more worth than most of the cars or trucks in the same class.

“That’s been a core strength for 20 years and we will not touch that,” Carter said.

Toyota’s top two markets are its home market in Japan and the U.S. market, which in the past few years have been exchanging first and second positions.

Carter said that the Toyota brand in the U.S. market chooses not to grab more share by offering more fleet sales to rental agencies, which are not as profitable as fleet sales to businesses or governmental agencies. In 2010, fleet sales made up 8.5 percent of the automaker’s new-vehicle sales.

Leases make up about 26 percent to 28 percent of Toyota brand sales, a level that Carter calls “the sweet spot” that he wants to maintain.

“Incentives are not part of our pricing strategy,” said Carter. “We do not price up and discount down. We price our vehicles at value.”

Carter said that he does not expect a major escalation of auto prices at Toyota or in the U.S. market in general. Auto prices as measured as a percentage of household income is at its lowest since the late 1960s, he said.

Seven new products on the U.S. market in 2011 will help boost Toyota sales but are likely to also increase incentives for the last months of the life cycle of the models the new or refreshed products replace.

Reporting by Bernie Woodall; Editing by Sanjeev Miglani bernie.woodall@thomsonreuters.com; 1-313-443-8844

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