Prius' new option: Incentives for buyers

Toyota finds it has to work to sell the hybrid icon as greater supply, more hybrid competition, loss of tax credit require it to offer incentives for first time.

By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- You can find two new things at Toyota dealerships: a supply of Prius available for sale, and incentives to attract buyers to the fuel efficiency icon.

Those things were hard to find in the past, as the compact sedan flew off the lots almost as soon as they arrived with the combination of gas engine and electric motor that gave it an average of 60 miles per gallon in the city. Many dealers had waiting lists of several months for the vehicle.

Toyota is having to offer incentives such as zero-interest financing and low lease rates to move the Prius because of much greater suppliers on dealers' lots.
Toyota is having to offer incentives such as zero-interest financing and low lease rates to move the Prius because of much greater suppliers on dealers' lots.
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But with a combination of lower gasoline prices, the loss of some tax credits for buyers of Toyota hybrids and a greater range of hybrid offerings from both Toyota and its competitors, waiting lists and above-sticker pricing are essentially gone. The Prius is no longer one of the nation's 10-fastest selling vehicles, the way it was for most of the last three-plus years.

The slower sales for Prius come at a difficult time for Toyota (Charts), which has aggressive plans to increase the supply of Prius available for sale in the United States by 70 percent this year.

So the company is offering incentives such as low lease rates or zero-interest financing it never had to use before. It's even planning a national advertising campaign for the Prius, which it has not bothered with since its 2000 introduction.

Figures from the Power Information Network, (PIN) a tracker of auto sales information affiliated with J.D. Power, shows that a Prius sold in January had been on the dealer lot for 26 days on average.

That's up from 20 days in December and more than twice the 12-day average in November. From the time the current version was introduced in the fall of 2003 through October 2006, the average turn rate for the Prius ranged from 5 to 11 days.

"It was repeatedly an all star in turn rate, either No. 1 or No. 2," said Tom Libby. Still, he said that the Prius has a quicker turn rate than Toyota's companywide average of 33 days for its U.S. sales, and sells much faster than the industrywide average of 66 days.

In January 2006, Prius sales made up about two-thirds of Toyota's hybrid sales, and about half of U.S. hybrid sales nationwide. But the introduction and growing availability of other hybrid models have cut its share to just over half of Toyota's hybrid sales in January, and just over 40 percent of U.S. hybrid sales.

PIN statistics also show that the transaction price is down $1,300, or about 5 percent, since June, when national gasoline prices were at or near $3 a gallon and Americans were paying more attention to fuel economy in their car purchases than in the past.

But it may be the Toyota dealers, rather than the automaker, who take the hit on the softer Prius pricing. In June, when the turn rate for the Prius was down to 5 days, dealers were able to get above list price for the Prius. Now Toyota spokesman Bill Kwong said the Prius is typically going for manufacturer suggested list price, which starts at $22,175.

Part of the price decline can be attributed to the cut in the federal tax credit for purchases of a Toyota hybrid, while it stayed high for other automakers' hybrid offerings. The tax credit fell to $1,575 on Oct. 1 while remaining at $3,150 for offerings like the Honda (Charts) hybrid Civic, the Ford (Charts) Escape, or the Saturn Vue Green Line from General Motors (Charts), because those competitors have yet to reach the hybrid sales total that results in the drop in the credit.

The Toyota hybrid credit will fall by 50 percent again on April 1 to $787.50 and disappear altogether on Oct. 1, another reason that Toyota is putting more marketing clout behind the Prius.

Right now it's offering zero-percent financing over two years for a Prius, and other below-market rates for longer-term loans. It also is offering a $219 a month 36-month lease for the Prius.

Kwong said that a limited supply of the Prius has been a big part of the reason for the tight supply, but with Toyota starting production of the hybrid Camry at its Georgetown, Ky., plant in October, the company now has greater capacity back in Japan to make the Prius for global distribution. And he said greater supply should help it meet the more aggressive sales goal.

"This is great for customers, because there are no longer the long waits," he said. "You can see one on the lot and you can get one in the color and with the options you want."

He points out that the company's total hybrid sales in January was up about 25 percent from December and about 50 percent from January a year ago.

"It's because of a big increase in production that we're going to have to use these sales strategies, not because there's lack of interest in hybrids," he said. As to the increased competition, Kwong said, "The Prius is like the icon for hybrids. For most people there is no second choice."

Libby agreed that the sales of hybrids are still strong by industry standards. All hybrid models other than a Prius have both a conventional gas model as well as a hybrid version, and in each case, other than the Honda Accord hybrid, the hybrid version has a faster turn rate despite a higher price.

Even when gasoline prices were at $3 a gallon, the extra cost of a hybrid made it questionable if a buyer would save money from the improved efficiency, Libby said. So he didn't think that the average gas price, now hovering at $2.19 a gallon, probably is as big an issue for the Prius as the increase in hybrid choices and the partial loss of tax credit.

"Remember economically for the consumer it doesn't work," said Libby. "But they want to be perceived as environmentally friendly."

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.