When it comes to luring customers, among the oldest tricks in the auto industry's book is offering a warranty package that's longer than the competitions'. Some drive-train warranties cover 100,000 miles or 10 years, whichever comes first. Another incentive used with regularity to get consumers into dealerships is the "cash-back" offer. Manufacturers are often reluctant to use these methods, because they're costly. But Toyota (TM) may not have many other options.According to Bloomberg, "Ideas being considered [by Toyota] include warranties of as long as 10 years and rebates of thousands of dollars per vehicle that would start in March."
It's not yet clear what Toyota's huge recalls will cost it in lost sales. The company's U.S. vehicle sales declined 16% in January even though recalls weren't announced until the second half of the month. That means Toyota's sales could easily drop more than 20% in February and remain negative for some time while the balance of the U.S. car industry rebounds. If this happens, Toyota's 18% U.S. market share, which took decades to earn, could drop precipitously.
Toyota has earmarked $2 billion to cover the costs of its 8 million vehicle recall, which includes eight models that have accelerator problems. That figure doesn't include the expenses for the recall of its Prius hybrid sedan and Tacoma pickup truck models. If Toyota has to offer companywide 10-year warranties and substantial upfront incentives to bring customers back into its showrooms, that first $2 billion is going to seem cheap.
Take the first steps to building your portfolio.View Course »