Honda Gets Aggressive With Pricing

Honda enters price war with Toyota



The automaker moves to preserve its market share amid aggressive sales incentives offered by its rival.

By Jerry Hirsch - LA Times

March 25, 2010

The auto price war is escalating with American Honda Motor Co. offering its biggest lease deal ever, a move analysts said was designed to offset aggressive sales incentives by rival Toyota Motor Corp.

What's unusual about this price war is that it is being fought the hardest by Japanese automakers, which historically have resisted using large incentives to sell vehicles.

Toyota fired the first volley when it announced a variety of discount financing and special lease deals this month in a move to regain market share in the U.S. after a series of embarrassing recalls.

"There is an irony in the fact that you have a price war launched by Toyota, which has never been reactionary before," said James Bell, an analyst with auto information company Kelley Blue Book. "They are playing the game other brands previously had to play to keep up with Toyota."

American automakers, by comparison, are showing restraint, if for no other reason that they don't have a lot of cash to burn on incentives, said Aaron Bragman, auto industry analyst at IHS Global Insight.

The discounting comes in the wake of a turbulent period of plunging sales for the automakers and bankruptcy restructurings for General Motors Co. and Chrysler Group last year. The industry has been working to wean itself from stimulating sales with large profit-trimming incentives.

"Any type of price competition hurts everybody's profits," said Shelly Lombard of Gimme Credit, a corporate credit research firm.

But moves by manufacturers to close factories and reduce expenses last year should make the companies less vulnerable to the current round of incentives because they have learned to make money on a lower sales volume, she said.

Honda has to act because it has the most shoppers who also consider buying Toyota vehicles and faces the "most competitive pressure," Lombard said. GM also is vulnerable because it has been supplanted by Ford Motor Co. as the biggest auto seller nationally and is still working to gain sales momentum after its bankruptcy reorganization. Ford, which "is on a roll," would be less vulnerable because it has fewer cross shoppers with Toyota, Lombard said.

Honda is offering lease promotions across all of its models -- the first time the automaker has had such a large incentive program. These include no down payment or security deposit, no money due for a month and waiving of any fees when the agreement is signed, spokesman Kurt Antonius said. The program runs until May 3, about a month longer than the current Toyota promotion.

"It just shows how slow the car business is," Antonius said.

Analysts said Honda had lost the most sales to Toyota.

"Honda needed to match [Toyota] to maintain its market share," Bell of Kelley Blue Book said.

Through mid-March, the Toyota incentives had allowed the company to build back market share lost to a continued recall and controversies over unintended acceleration in its vehicles, according to TrueCar.com, an auto pricing information company. Sales were running at about 15.5% of the market, the slice it held at this time last year.

Prior to offering its own incentives, Honda saw its share drop this month almost a full percentage point to 9.4%, TrueCar.com said.

Toyota's incentives may haunt it in future months, Bell said. The company has seen sales soar as bargain hunters and loyal customers stream into showrooms to take advantage of the deals, he said. But once that traffic runs out, Toyota faces the daunting task of selling to "people who are not loyal or who are skeptical of the brand," Bell said.