The incentive game is alive and well.

GM has announced a new round of zero percent financing deals for its pick-up trucks. The terms of the financing can be as long as five years. 

The current incentive war was started by Toyota, which introduced heavy incentives to move their slow-selling and brand new Tundra pickup, a vehicle which clearly flopped when it hit the market.
The move by Toyota has forced others to follow suit. The GM decision came only a day after it was announced that the Tundra had managed to eek past the GMC Sierra for third place in domestic pick-up sales. Though the Sierra has never been a big seller compared to the Chevrolet Silverado of which it is a clone, General Motors is not known for cheerfully giving up market share.

Even with the current zero percent financing deal, General Motors is resisting offering incentives as drastic as those of the competition, perhaps because the Silverado continues to be the top selling truck in the market. Though sales were down in July, the truck line is still hugely profitable for the company, representing perhaps a $7,000 to $10,000 profit margin per vehicle. 

In contrast, Toyota has been offering buyers a choice of $3,500 off the price or interest free loans for several months. Ford is offering a dealer certificate program, just introduced, that gives a dealer a certificate worth $250 for every F-150 sold. The dealer can group as many as four of them to cut the price to a single customer by $1,000. This is on top of earlier incentives already announced by Ford, which include as much as $2,500 back on an F-150 and 1.9% financing. Dodge is offering $5,000 back and zero percent on its trucks.

The net result of all this is to put the various manufacturers back in the positions from which they started, though forcing each to reduce their prices. Toyota probably gains very little from starting the war. It gains a short-term bump in sales, but ends up having its bet called by GM with incentives which cost it less than Toyota’s must be costing it. 
Overall, the skirmish signals GM’s intention to preserve its place in the truck market, and underscores Toyota’s failure entry to make inroads in the pick-up truck market. Toyota has already shelved (some say cancelled) plans to produce a heavy-duty version of the Tundra, ceding that part of the market to the Detroit automakers. Toyota has also changed the way it inventories trucks at dealers, building up dealer supplies so that a buyer can select the vehicle he or she wants, rather than having to order it

But the real culprit in the failure of the Tundra may be the Toyota dealer network.

Analysts have for years been saying that the Detroit carmakers have too many dealers, and suggesting that the automakers would be better off emulating the Japanese manufacturers, such as Toyota, who have far fewer dealers than GM, Ford, and Chrysler.

But, when it comes to selling trucks, having a lot of dealers may be the key to selling a lot of trucks. It is one thing to concentrate your dealers in larger metropolitan areas when you’re selling Corollas, a car that appeals to the economy oriented suburbanite. It is not necessarily such a good thing when you are in the truck business, selling to a variety of buyers located over every geographical region of the country, urban, suburban, and rural. (A lot of dealers, of course, also means dealers can trade vehicles between themselves to get a buyer the vehicle he or she wants quickly, even if the dealer doesn’t have it in stock.)

Then, too, Toyota dealers don’t have any real experience selling trucks. Sure, they had the old Tundra, but nobody considered that to be a serious truck. Trucks are sold differently than cars. Truck buyers are very astute in determining the options they need to suit the purposes for which the truck will be used. They are accustomed to selecting among choices in engines, transmissions, and capacities, among other truck attributes. These aren’t choices which the car buyer at a Toyota dealer has, or would care about. Selling trucks takes a different mental approach than selling cars.

Toyota built expectations when it introduced the Tundra. Putting heavy rebates on it shortly after its introduction and shelving the heavy duty version may be mistakes from which it cannot recover. 

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