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The Aftermath: Toyota's Sales To Drop After Incentives Dry Up

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On: Thu, Sep 2, 2010 at 4:04PM | By: Chris Weiss

The Aftermath: Toyota's Sales To Drop After Incentives Dry Up

If the average person had to guess how Toyota's sales have been over the past year, I'd imagine he'd guess that they've been rock bottom. Toyota's public persona has been one of an embattled automaker struggling desperately with dire safety problems and government investigations.

In reality, however, things haven't been that bad for Toyota. In fact, according to the company's numbers, U.S. sales for the first half of this year actually increased by about 10 percent year-over-year from 2009. And after its fiscal year ended in March, Toyota reported a $2.25 billion profit. Not only does that figure make the $16.4 million fine imposed by the NHTSA over recall delays look paltry, it represents a significant leap forward from the previous year when Toyota actually lost money.

Sales incentives, both from programs like Cash for Clunkers and from Toyota itself, played a major role in keeping U.S. sales strong despite ongoing image problems. Now the automaker faces a new set of hurdles in Japan, where the impending end of government incentives is expected to cause a major sales decrease in auto sales. Toyota and the greater Japanese auto industry are bracing for the hard times to come.

At the time that it reported Toyota's earnings for fiscal year 2010, The New York Times reported that Toyota was expecting a profit increase up to $3.34 billion for fiscal year 2011. However, a Bloomberg report today indicates that this may be easier said than done.

Toyota has been selling Prius models at a strong pace since the third-generation of the hybrid debuted in May of 2009, but incentives from the Japanese government have been a major factor in the Prius' sales. Similar in aim to the Cash for Clunkers program in the U.S., Japan provided up to 250,000 yen ($2,963) for auto buyers that got rid of a 13 + year old car for a new, more efficient model.

The Prius accounted for 20 percent of Toyota's Japanese first-half sales, thanks largely to the government incentive program. In fact, in July, the Prius enjoyed its 15th straight month as Japan's top-selling car. The program will end in September, and Toyota is preparing for a drop-off in sales. In fact, the drop has already begun. Prius orders have slowed significantly in recent weeks, and due to a production back-up, the model is already out of the timeframe for incentives.

“A collapse in sales is unavoidable,” Hiromi Inoue, the new-car sales chief for Tokyo Toyopet Motor Sales Co. told Bloomberg. “The daily pace of orders for the Prius is already dropping. We are bracing ourselves for the coming crisis.”

Beyond Toyota, the greater auto industry in Japan is expected to take a hit as well, with estimates from the Japan Automobile Dealers Association indicating a drop of 23 percent over six months, starting in October.

Toyota plans to offer its own incentives to help ease the decline. The has had some recent success with incentives, which were credited for helping it to maintain strong sales here in the U.S. despite its recall of over 10 million vehicles. In fact, Toyota experienced its strongest months of the last fiscal year between January and March, the time at which it was under the most government and media scrutiny for recall problems.

Dealers have already begun offering various cash-back and option incentives for Prius buyers. Luckily for Toyota, dealers have a windfall created by leftover money allocated to recalled Prius repairs.

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