When the U.S. auto market crashed in the fall of 2008, automakers bumped up incentives in a big way to clear dealer lots of bloated inventory. But when Cash for Clunkers drained inventory – with industry-wide incentives reaching $3,165 per vehicle – while simultaneously removing nearly 700,000 used vehicles from the market, automakers quickly weened themselves off incentives.

Steering clear of heavy incentives likely wasn't all that difficult for Toyota, as the Japanese automaker has traditionally kept prices near MSRP even in the leanest of times. That changed, though, when Toyota became synonymous with the term "unintended acceleration." Toyota's nightmare public relations scenario came true as the traditionally quality-rich automaker was forced to recall over eight million vehicles. Sales dropped like a stone in the first two months of 2010 while every other automaker outside of Auburn Hills, MI saw substantial gains compared to a rough 2009.

Toyota had to do something to get foot traffic on the showroom floor, so the Japanese automaker took the outrageous step of offering zero-percent financing on its most popular models. Analysts at Edmunds and elsewhere tell us that the early returns from the big discounts are positive, with Toyota sales reportedly up an estimated 47 percent versus March, 2009.

But with Toyota once again rolling, other automakers are looking to turn more sales, and incentives appears to be the best way to do that. Detroit automakers are back on the zero, and even Honda is spending big on incentives. Barclays Capital tells Automotive New that a 60-month, zero-percent loan on a $30,600 vehicle costs an automaker a staggering $4,857. That's a lot of coin, but the early returns of cash on the hood are positive. And Edmunds reports that early March sales are up to 12.5 million on an annualized basis, the highest levels achieved since the Clunkers program.

So it appears as though Toyota started a potentially expensive, drawn-out incentives war. In the short term, customers win regardless of which automaker makes out best with these fresh incentives. Over the long haul, though, automakers need to make a profit so they can make more of the products we love so much.

[Source: Automotive News – Sub. Req. | Image: Ronaldo Schemidt/AFP/Getty Images]

Share This Photo X