Toyota Loyalists Likely Unfazed By Recall, Fence Sitters Another Matter

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NADA Convention & Exposition

ORLANDO, FL – Sales forecasters with the National Automobile Dealers Assn. do not expect Toyota Motor Corp.’s lofty marketplace image to suffer long-term damage from the auto maker’s unprecedented recall campaigns this year.

“What kind of impact is this situation going to have on Toyota from a perception standpoint?” asks Jonathan Banks, senior director of editorial and data service for NADA’s Used Car Guide. “I think we can all agree the perception is not going to be positive.

“However, I think we can also agree a behemoth like Toyota, and knowing their history, they’re going to react in a way that will send a signal to consumers that they can have faith in the brand,” Banks tells journalists during a briefing here on NADA’s forecast for 2010 new- and used-vehicle sales.

In fact, Toyota began taking those steps earlier today. The auto maker confirmed plans to increase incentives to current Toyota owners, reportedly to $2,000 from $1,000. Reports also suggest the auto maker might raise its powertrain warranty from five years and 60,000 miles (97,000 km) to at least 10 years and 1000,000 miles (161,000 km).

Such a hefty and expensive powertrain warranty would mark a first for Toyota, which unlike auto makers such as General Motors Co., Chrysler Group LLC and Hyundai Motor America, has enjoyed the luxury of letting its previously bulletproof quality record speak for itself.

That doesn’t mean Toyota will emerge completely unscathed, Banks says.

“The people on the fence that don’t already have a preconceived notion of Toyota’s quality are going to go out and look at the (Ford) Fusion, the (Chevrolet) Malibu. They’re not going to be willing to sign that big premium that’s based on that perception anymore.”

Banks stops short of suggesting a Fusion or Malibu will unseat Toyota’s flagship vehicle, the Camry, as the best-selling midsize car in the U.S. since 1997.

Fewer, more expensive used vehicles to boost sales of new ones, says NADA Chief Economist Paul Taylor.

“But we’re not going to see that historical premium continue,” he adds.

Toyota Motors Sales USA Inc. deliveries in January were down 8.7% on a daily rate basis to 98,796 vehicles, according to Ward’s data. It marked the first time in more than a decade the auto maker did not deliver at least 100,000 units in a given month.

TMSUSA executives estimated the recall campaign and related production stoppage cost the auto maker 20,000 deliveries in the month.

But perceptual problems wreak havoc on used-car sales, as well. New- and used-vehicle prices track each other, so poor perception diminishes profitability on both sides of the dealer lot. And dealers typically deliver many more used cars every month than they do new ones.

Banks forecasts a solid year for used-vehicle sales in 2010, driven by a supply shortage, more buyers in the market, better economic fundamentals, more prudent production schedules and auto makers seeking to raise the average transaction price of new vehicles.

NADA also forecast improved new-vehicle sales in 2010 of about 11.9 million units, compared with 10.4 million in 2009.

Paul Taylor, chief economist at NADA, admits the prediction lies on the more optimistic end of industry forecasts. “We think the interaction between the new and used market is a large part of what will help sales,” he says.

The supply shortage of used cars and trucks, as well as their higher prices, could drive some of those buyers over to a new vehicle.

“The other thing is we believe in this economy, and we believe the higher mileage totals on cars out there are going to lift sales as well,” he says.

The wild cards to Taylor’s forecast include the real-estate market, which he thinks has turned the corner overall in the U.S., and fuel prices, which have remained stable for the last 18 months.

Looking back on 2009, Taylor calls the government’s “Cash for Clunkers” program an unqualified success. Some critics have said it was too expensive and did not improve fleet-fuel economy greatly.

“Anyone who looks at the facts will see it did exactly what a stimulus program is supposed to do,” he says.

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