Is Toyota Roaring Back?

Could it be? Is it possible? Is Toyota (NYSE: TM  ) about to turn in a stupendous sales turnaround?

At least two sets of analysts thinks it's likely, and their collective track record is pretty good.

I mentioned this briefly in last Friday's "This Week in Autos" roundup, but it deserves a closer look: Late last week, the sales-watchers at Edmunds.com said that they expected March vehicle sales numbers -- in aggregate, not just for Toyota -- to be up a mind-blowing 43.9% over February.

February of this year. And Toyota's increase -- I'll get to that in a minute -- was even more dramatic.

The economy might be improving, but it hasn't improved that much that quickly. How could this be happening?

Here's how: Toyota has started a price war.

Apologies over. Now they're mad.
Clearly, Toyota is trying to put February's very public series of embarrassments behind it once and for all. Edmunds is predicting an 82% increase for the Japanese giant, fueled by the kind of incentives blitz we're more accustomed to seeing from companies like Chrysler and General Motors. That increase would be enough to give it a 16.3% share of the U.S. market, up from 15.5% a year ago (and from 12.9% in February), Edmunds estimates.

So how solid is that estimate? A few days before the Edmunds report was released, analysts at TrueCar.com, another respected source, predicted a nearly 71% increase. We'll know for sure in a few days, but clearly something very significant is happening.

To my mind, this raises two questions:

  1. How are they doing it?
  2. Whose hide are those sales coming out of?

The answer to the first question seems pretty straightforward: Cash on the proverbial barrelhead. TrueCar.com estimates that Toyota's incentives -- the industry term for 0% financing offers, "cash back" deals, and so forth -- will total $2,318 per car in March. That's not enormous by industry standards -- the average is around $2,800 per car -- but it's huge by Toyota's historical standards: It's a 46.7% increase over what it was offering in the economic-doom month of March 2009, for example. Industrywide, the average incentive spending per car is down almost 10% over the same period.

Combine big incentives with the company's ongoing marketing blitz (seen a Toyota ad lately? Yeah, me too.), the sense that the economy is improving a bit, and the fact that the media's attention has been off of Toyota's woes and on other things, and an enormous sales rebound really isn't all that much of a surprise. In fact, I anticipated this possibility a month ago, as did many of you.

But if Toyota's market share is going back up, whose is going down?

So who's the loser?
Interestingly, if Edmunds' estimates are accurate, the impending market-share loser isn't Ford (NYSE: F  ) , the company that was widely seen as the chief beneficiary of Toyota's woes last month. Edmunds predicts that Ford will hold the impressive market-share gains it made in February, and Toyota's gains will come primarily from Chrysler, GM -- and Honda (NYSE: HMC  ) .

These gains are despite some decidedly un-Honda-like discounting in recent weeks. Honda has historically been extremely reluctant to get into incentives wars, preferring to keep things simple -- and keep its margins as fat as possible -- and not wade into battles for small market-share gains.

But Honda, which is in many ways Toyota's closest competitor, has quietly been ratcheting up its own incentives, offering $0-down lease deals in an effort to win sales from buyers cross-shopping aggressively discounted Toyota models. Still, Honda's per-car incentives are well below Toyota's levels of spending, and the company appears to be proceeding with its usual prudence, all things considered.

One last thought
Toyota's turn to aggressive incentives to regain lost market share reminds me of the way GM approached the market in recent years -- to buy with discounts the sales it couldn't win with product quality. Dependence on incentives, long-term, is a margin-eroding trap that I expect Toyota to try to avoid. Sooner or later, Toyota will try to declare things "back to normal" and ratchet its incentives back down. But will things really go back to "normal" any time soon? Or is Toyota's once-impeccable quality reputation -- and ability to generate big sales without incentives -- gone for good?

What do you think? Are the old days gone forever, or is this just a blip? Scroll down to leave a comment and let me know.

Fool contributor John Rosevear owns shares of Ford. You can follow his Foolish twittering at @jrosevear as he continues to sort through the ongoing global auto shakeout. Ford Motor is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 29, 2010, at 6:27 PM, plange01 wrote:

    toyota doesn't have anything to roar back from ...its the #1 carmaker right along...bad press,bias and a lot of false claims.no big deal...

  • Report this Comment On March 29, 2010, at 7:52 PM, TMFMarlowe wrote:

    Actually, in the US market, they're #3 by sales volume at the moment.

    Thanks for reading.

    John Rosevear

  • Report this Comment On March 30, 2010, at 5:43 AM, Br0oklyn wrote:

    With (F) Ford In The Way..

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