Dealers have been tacking on as much as $3,000 extra for the Toyota Prius, lately. Now the maker will raise its prices, as well, by more than 2%.
Toyota plans to raise prices on almost its entire line-up on May 1st, a move many observers had anticipated in light of the Japanese auto meltdown that has cost the maker hundreds of thousands of units in lost production.
Dealers have already begun raising prices, according to various reports, hoping to take advantage of the supply shortage, which is expected to grow worse in the coming weeks, and analysts say the giant Japanese maker is hoping to get its share of the potential bonanza.
But in light of the maker’s worse-than-expected 5.7% decline in sales during March, some observers warn that Toyota may be setting itself up for further setbacks.
The increases average about 2.2%, though they vary by model and brand, with some slower selling models, like the Scion xD, seeing prices rise by as little as 0.4%.
“It’s Business 101,” says analyst Jim Hall, of 2953 Analytics. “It’s supply-and-demand and they’re trying to make up the revenue they’re losing with the rolling blackouts in Japan cutting production.”
Like the rest of the Japanese auto industry, Toyota was hammered by the March 11 earthquake and tsunami that devastated the northeastern corner of that country, where many suppliers are located. The situation has only grown worse due to the crisis at the Fukushima nuclear plant, which has left Japan short of power.
Toyota has also had to trim production in U.S. due to parts shortages and could see even more cuts at its so-called “transplants” in the weeks ahead.
Industry analysts report that dealers are now commanding as much as $3,000 more for some of the maker’s hotter products – such as the Prius, which had already seen demand soar due to the surge in U.S. fuel prices.
Of course, that’s not unique to Toyota, stressed Jesse Toprak, analyst with TrueCar.com. “The actual and perceived supply chain problems enabled automakers to lower incentive spending in March with the trend expected to continue into April,” said Toprak. “The Japanese automakers will see a dramatic reduction in incentive spending in the coming months with an increase in transaction price.”
Domestic and European makers are also likely to take advantage of the current situation to raise prices. “Everyone else will follow this,” suggested analyst Hall.
Though the Japanese production crisis is likely to last a few months, at worst, the industry is hoping to make the likely price increases stick. Even without a shortage of parts they’ve been facing plenty of problems with rising raw material costs, among other things, that have been difficult – until now – to pass on to consumers.
TrueCar data show that leading up to the Japanese natural disaster, prices had been running flat for quite some time, especially when incentives were taken into account.
Toyota, in fact, saw its average transaction price – what a customer actually pays, as opposed to the MSRP — slip to $25,408 in March, down 0.8% from $25,623 in March 2009.
The reason? Competition was clearly a factor, but that was driven all the more by the damage the giant maker suffered as a result of its ongoing safety and quality crisis.
That’s why one executive with a Detroit maker – asking not to be identified by name – warned that “this could really backfire on them.” Toyota, he added, has been used to commanding a premium for its products, but lately they have had to use record-level incentives.
Even that didn’t help last month, with March sales dipping 5.7%, significantly worse than many observers had forecast and likely little to do with the problems the maker has faced in Japan. Toyota struggled during the final quarter of 2010, the only major maker to report declining volume, and only reversed that trend at the start of 2011 with a bump up in incentives.
It will clearly be a test of the brand’s long-term drawing power as it tries to make the increases stick – and as dealers take advantage of the production problems to boost their own profits.