KBB: Things Could Have Been Worse For Toyota


In "Toyota: One Year Later," Kelley Blue Book argues that despite Toyota's agita around product recalls, the Torrance, Calif.-based Toyota Motor Sales' used- and new-car values have held up. Toyota's luxury brand Lexus underperformed the market last year, but so did most luxury brands, due to the economy.

Three-quarters of the shoppers KBB surveyed for its Market Intelligence report said they were aware of Toyota's 2010 recall problems, and more than half said they believe that Toyota's brand reputation has been tarnished by the recalls. Forty percent, however, said they believe Toyota has adequately resolved its problems related to the recalls.

The Web auto shopping and research site says, however, that the recalls will have a sustained effect on consumers' consideration of Toyota vehicles, which was depressed throughout 2010 and hit an all-time low in the fourth quarter, per KBB. Also, consumer perception of Toyota safety ratings hit an all-time low throughout 2010, and it still is low versus previous years.



So if things really didn't go too well for Toyota last year, how was it not as terrible as all that? "Our sense is they came out pretty well in that it could have been a lot worse," says Jack Nerad, executive editorial director and executive market analyst at "Had this happened in the midst of a real important introduction like a Camry or Corolla, it would have been much worse. But last year was a fairly fallow time for them in terms of their product cycle, but it was for everyone else. So if you are going to have a bad time, it might as well be when everyone is in the barrel as well."

Toyota's new-car traffic on is down 6% in the last year, with Corolla, Camry and RAV4 all seeing declining traffic. The silver lining is higher traffic last year for Sienna, Prius, Highlander and Tacoma.

Toyota launched a big incentive push in March last year in the middle of its recalls. And while the incentive spend was in line with what everyone else was doing, KBB points out that what hurt Toyota was market-share loss to companies like Hyundai, Kia and Ford, which had new products and glowing reputations, allowing them to benefit from Toyota's problems. Nerad says Hyundai, in particular, has benefited from Toyota's problems. "As an entry brand that is being seen as premium among popularly priced automotive brands, they have really shot ahead," he says. "Both Hyundai and Kia, and I'm sure Ford, have benefited as well."

Kelley Blue Book analysts say stigma over Toyota's recall won't have a long-term effect on the residual value of Toyota's vehicles. What will affect Toyota residuals are softening gasoline prices and, therefore, softening of sales of fuel-efficient vehicles, issues around vehicle design, and the hangover from heavy incentive spending last year.

In KBB's tracking of residual value, however, Toyota remained in second-place behind top brand Subaru for this year. And Nerad says if fuel prices keep heading up -- as many predict they will -- Toyota will do well. "They have a reputation of being fuel efficient dating back to the brand's introduction in the U.S.," he says. "That perception dies hard."

As for the design issue, a lot actually has to do with Toyota's long-standing safety and quality standing. "Brand reputation in one area enhances everything else," says Nerad. "But Hyundai has surpassed Toyota in design, and the domestics have stepped it up as well. And design will become more important for Toyota because of a leveling in terms of quality, reliability and dependability."

He says all of it points to an uphill slog in 2011 for Toyota. "I think it's going to be a more expensive year for them, both marketing- and incentive-wise," says Nerad.

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