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TMFDeej (99.47)

Toyota is getting aggressive. That's great news for Q4 auto sales.

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September 17, 2009 – Comments (2) | RELATED TICKERS: TM

Ever since Toyota's dealer meeting in Las Vegas two days ago I have been hearing rumblings about how Toyota was about to get very aggressive with its sales promotions during the fourth quarter.  An article in this morning's WSJ confirms those rumors: Toyota Sets a Big Sales Drive.

In an effort to prevent a post Cash for Clunkers hangover from happening, Toyota plans to spend a billion dollars on marketing its vehicles in the United States from now through the end of the year.  That's an increase of 30% to 40% over what the company normally spends on marketing per quarter.

A big part of the program involves Toyota's captive finance companies boosting their residual values for Toyota, Lexus, and Scion models to provide more attractive lease payments.  Assuming that Toyota's residuals were accurate before this adjustment this is essentially a way for the company to provide additional lease support on its vehicles today and not have to pay for it until three or so years from now.  Perhaps Toyota is hoping that auto sales will have recovered substantially by then and it can use its future cash flow to pay for the program (Toyota actually lost money in its most recent fiscal year).

One can argue about whether residual value support is a good idea, but one cannot dismiss the fact that this advertising and incentives blitz will likely have a very positive effect upon Toyota's fourth quarter sales, and in turn U.S. light vehicle sales for the quarter and year.  Given the fact that more than half of the vehicles that Toyota sold last month were manufactured in the United States, this move should provide a boost to the Q4 GDP as the company cranks up its production to meet an anticipated increase in demand.  The increased spending on advertising is also good news for media companies, which will benefit from any increase in advertising that comes from an economic recovery (even a slow one).

Deej

2 Comments – Post Your Own

#1) On September 17, 2009 at 11:43 AM, leohaas (93.93) wrote:

Boosting residual values results in lower lease payments. For many consumers, the monthly payment is (foolishly) the only thing they worry about. So Toyota may be on to something.

As for the problems down the road, they will definitely be there. How big, that is going to be the question. Plenty of drivers go over the mileage, and have to buy the car at the end of the lease. Perhaps Toyota is only pulling this trick on low mileage leases (10 or 12k/yr)? If so, it sounds like a good idea.

This does spell trouble for some of Toyota's weaker competitors. Car makers with weak financials will lose market share because of this.

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#2) On September 17, 2009 at 2:04 PM, chk999 (99.98) wrote:

It would seem like a good strategy to use financial strength during a downturn to crush some of the weaker competitors and gain long term market share.

There can be only one.

 Chris - long TM, GE, JNJ and other outstanding companies

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