When it’s not a big enough incentive

It’s been a gruelling six months for Toyota. The world’s biggest automaker has recalled nine million cars, trucks and SUVs since last November and paid an embarrassing US$16.4-million fine in the United States. The penalty was related to its foot-dragging over safety recalls, including those stemming from complaints about sticky gas pedals and floor mats that trapped accelerators in the wide-open position. But after watching sales plummet during the first two months of the year, Toyota bounced back with consecutive months of year-over-year sales increases in the U.S.—up 41 per cent in March and 24 per cent in April.

With its reputation for quality dented, Toyota achieved the numbers by doing what the Detroit Three—GM, Ford and Chrysler—have historically done when faced with tough times: buy the market. That includes offering consumers incentives like zero per cent financing, cash rebates and free gas or maintenance. In the U.S., the deals are expected to be around for at least another month as Toyota attempts to rebuild its battered brand.

The problem, experts say, is that such inducements are like a drug. They yield a big high at first, but require ever-increasing doses to maintain the feeling. GM and Chrysler are still fighting that battle.

The first inklings that Toyota may, for the first time, be falling into a similar trap surfaced last month in Canada. Despite similar incentive programs to those offered in the U.S., sales of Toyota models fell nearly 17 per cent in April—this, following a 24 per cent increase in March—while several rival automakers posted big gains. “We know in Canada that they bought the market in February and March, but this has run out of steam,” says Dennis DesRosiers, an automotive analyst. “The negative in the recall is overwhelming the incentive money.”