U.S. Auto Sales Rebound: Thank the Toyota Recall

Last Updated Apr 2, 2010 6:59 PM EDT

U.S. auto sales had a big jump in March, for which automakers can only say: Thank God for the Toyota recall.

Sales jumped 24 percent in the month, thanks to record-high incentives from Toyota (TM) intended to compensate for its problems with braking and unintended acceleration. Weirdly enough, Toyota itself was a big beneficiary, as its sales rose 40 percent over the previous March.

Toyota's incentives started a price war with other Asian automakers. For a change, though, those moves didn't provoke a response from Chrysler, Ford (F) and General Motors. A poor year-ago month also exaggerated the overall increase. Through the first quarter, U.S. auto sales in March were about 2.5 million, up 16 percent from the year-ago period, according to AutoData.

Even with the big increase at Toyota, the domestic U.S. manufacturers still have much higher incentives, by a margin of more than $1,000 per car each, according to Edmunds.com, an auto shopping and research web site. Honda (HMC) and Hyundai (HYMLF.PK) also hiked their incentives, but they remain lower than Chrysler, Ford and GM.

Still, the domestics kept their incentives level with February, and lower than they were a year ago. They are able to exercise some restraint for several reasons.

One, the domestics cut costs and production, so they're under less pressure than before to move the metal at any cost. Two, there's less cross-shopping between Toyota and the domestics than there is between Toyota and other Asian makes. If Toyota cuts prices, Honda pretty much has to follow suit. Lastly, Ford and GM are on something of a roll, thanks to new models. Ford sales were up more than 40 percent in March. GM gained 22 percent.

Toyota spent a record -- for Toyota -- of $2,256 per car on incentives in March, according to Edmunds.com. That was up about 37 percent from February, and an increase of 44 percent from the year-ago month.

Jessica Caldwell, director of industry analysis for Edmunds.com, said that March results represented a record for combined average incentive spending for Japanese automakers. She predicted the deals - many of which are set to expire April 5 - will be extended.

"April is typically a slower sales month than March, and we're already getting signals that some automakers will extend their incentives," she said.