All is not clover for Honda and Toyoter
But Honda and Toyota are feeling the financial pinch, even though they’re doing their best to hide it by limiting their financial incentives to their dealers.
In contrast to the Detroit automakers who put cash on the buyer’s table (as has Toyota, when it comes to the slow selling Tundra), the bucks which Toyota and Honda have been paying to move the metal have been going to the dealer. Of course, the dealer can use that money anyway he or she sees fit, from increasing the ad budget to making a better deal with the customer.
That might not be news, were it not for the extent of the incentives which the Japanese powerhouse automakers have been giving to their retail outlets.
According to Winding Road, the incentives offered by Toyota this past June were 53.6 percent higher than those for the same month last year. But Toyota got off light. Honda’s incentives were 73.2 percent above last year’s level. This still leave them below the industry average of almost $2500 per vehicle, but it is a trend that must be profoundly disturbing to both automakers.
Both automakers are trying to protect resale values – essential to maintaining their lease sales rates – by not offering incentives directly to the consumer. But the fact that neither company has been able to maintain sales without paying extra cash to dealers to sell the vehicle is not good news for either automaker.
Some auto industry analysts have suggested that Toyota, in particular, is going down the same road that lead to General Motors problems: putting market share over unit profit, making cars which were bland and indistinguishable in styling, and trying to build profits by cutting costs resulting in product unreliability. Toyota has expressly stated that becoming the number one automaker in volume is its number one goal. It recalled more cars last year than it produced and the introduction of the new Tundra has been a black eye to the company, both in sales levels and reliability. The last two months has seen the company pay customers $3,000 to take a Tundra off its hands and the need to recall a number of those it did sell due to defective camshafts.
Honda, in the meantime, has proliferated a number of models, none of which can be distinguished from the other in appearance, except for the van and the crossover truck, both of which actually do look different than other Honda models because they’re bigger. Even those models, the Odyssey and Ridgeline, aren’t selling well and are subject of the new dealer incentives. The decision of Chrysler to cut prices on the 2008 minivans cannot be good news for Odyssey prospects, either. After an initial blush of good reviews, the Ridgeline sank into the netherworld of a vehicle that’s not strong enough to be a truck and not useful enough to be a crossover.
Things may not be rosy for the Detroit automakers, who still operate at a major cost disadvantage to the import competition. But it seems that the Japanese automakers aren’t having a good time either. As GM, Ford, and Chrysler established, building commodity cars always leads to commodity pricing.
And commodity cars is what both Toyota and Honda have become.