Toyota Cranks Q4 Marketing Budget Up to Eleven
By Chris Haak
With apologies to Spinal Tap, Toyota is actually cranking it up to one – as in one billion. According to a report published today in the Wall Street Journal, Toyota is preparing a costly, $1 billion USD marketing push in an effort to drive US sales upward in the fourth quarter. The $1 billion spend represents a substantial 30-40% increase over what is typically spent in the fourth quarter.
The push will be multifaceted, with some of the money going to subsidized leases and interest rates on loans, some to cash incentives, and some to help dealers with local advertising. The company also plans to ramp up its production in advance of the marketing blitz. In the company spokesman’s words, Toyota plans to “play offense” because you can’t “play defense forever.”
Part of the way that Toyota will be able to offer more attractive leasing deals is by increasing its residual-value assumptions used when calculating lease rates. Basically, the company is figuring that its cars will be worth more at trade-in time, which means that less of the vehicle’s useful life is consumed during the period it’s leased, making monthly lease payments more attractive. The downside for Toyota is that if resale values don’t hold up as well as their projections, they could be stuck with cars worth far less than the projected value after they’re turned in, which means losses several years down the road. But since Toyota needs to generate sales now, it might not be a bad idea. Three-plus years from now, the company will probably be generating boatloads of cash again, and the losses on returned lease cars will just be a blip on the radar.
Another news item that came out in the Journalarticle cited that thee ambiguous “people familiar with the matter” told the WSJ that the company is considering additional hybrid models both larger and smaller than the current Prius. If those considerations become reality, the well-recognized Prius name would go from the nameplate on a single model to the name of a sub-brand of Toyota. That approach is similar to what Toyota did with its Scion brand – which is actually just a sub-brand of Toyota. Lexus, in contrast, is its own distinct brand from Toyota.
Toyota’s sales results have been poor in the US for most of 2009. While the company’s products generally do very little to excite enthusiasts, they often do serve as an easy default choice for buyers who want comfortable, reliable transportation without the hassle of multiple test drives and shopping around. In spite of its struggles throughout the past several months, Toyota has enormous financial resources that it can bring to bear in the US market – and the luxury of its 100%-controlled captive finance arm (which Ford also has, but GM and Chrysler do not). If throwing all of this money at the US market doesn’t move the sales needle, I’m not sure what else Toyota can try to make things happen. I predict that they’ll see some movement in their favor, though.
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