Nation's Nervous Toyota Owners Look to Honda for Safety and Value

NEW YORK, Feb. 2, 2010 -- A group of Honda dealers have created the Recall Replacement Program in response to the wave Toyota owners flooding Honda dealers to safeguard their personal safety and the resale value of one of their cars by trading in their potentially defective Toyotas for a Honda. Toyota's recent safety recall of 2.3 million U.S. vehicles, in addition to millions more outside the US, has auto industry analysts and, more importantly, car owners reassessing their views of Toyota's safety levels. But value-conscious Toyota owners are also scared by what the massive safety recall might mean for the resale value of their cars.

With Honda boasting the highest resale value of any car sold in America (in addition to an excellent safety record), Toyota owners are flocking to Honda dealers to trade in problematic Toyotas for popular models of what has long been considered Toyota's best competitor--Honda. In the world's largest car market, New York, where Honda has the greatest market share of any auto brand, Honda dealerships are already seeing a steep increase in sales. Toyota owners are dumping beleaguered Toyota models like the Camry and Corolla, while car buyers who might have once wavered between Toyota and Honda are now firmly convinced that Honda is the smart option.

Paragon Honda in New York, which is the largest Honda/Acura dealer in the country, developed its Recall Replacement Program in response to the influx of Toyota owners eager to trade in their cars before they're hit by safety issues or a resale devaluation caused by negative associations with Toyota's brand. Paragon Honda's Recall Replacement Program, which launches on February 3, offers Toyota owners up to $4,500 of trade-in credit if they upgrade to a new or pre-owned Honda or Acura. To further help Toyota owners stem any loss accrued by the recall fracas, Paragon Honda has also decided to offer up 0% financing, in addition a guarantee by the dealership to pay off any remaining loans on traded-in Toyotas.

While some might see the generous terms of Paragon Honda's Recall Replacement Program as a financial risk for the dealership, Paragon's executives see the program as a prudent, value-driven investment in long-term customers. "Honda owners are loyal to the brand for the very simple reason that Honda is loyal to them," says Brian Benstock, General Manager and Vice President of Paragon Honda. "Honda has an international reputation for reliability. But it's just as important, as we're now seeing, that customers can rely on the value of their Hondas as well, so they're not left in an economic lurch somewhere down the road."

As Paragon Honda tabulates record sales this month, even in the context of a sour economic climate, Benstock's understanding of what car owners want and need today is proving to be accurate. Benstock explained that he recently had a customer who bought a used Toyota before last week's recall but returned to Paragon Honda this month in order to trade in the Toyota for a pre-owned Honda. For that Paragon customer, as with millions of other American car owners, Toyota's problems have become simply too serious to ignore.

With dealers like Paragon Honda showing sales levels on track to increase Honda's market share over Toyota by between 50 and 100 percent this month alone, and with those numbers projected through the next financial quarter, there is an indication that the reversal of fortunes is part of a larger sea change concerning competition between Honda and Toyota.

With prices for the Honda Civic at $149 a month and the Honda Accord at $189 a month, Honda has emerged in recent years as a less expensive and more reliable alternative to Toyota, a fact that has resonated sharply with car buyers in the US during a financially difficult period. The expense to Toyota owners affected by the recall, who will have to make other money-costing arrangements to get to work while their vehicles are being repaired, has further underscored the idea that owning a Toyota might no longer make the financial sense is once did.

The consumer storm emerging over Toyota's gas pedals and floor mats which are causing uncontrolled acceleration in many Toyota models, including the top-selling Camry and Corolla, has also badly shaken Toyota's standing. The company's week-long delay in addressing the issue triggered accusations by news outlets and consumers that the car company was, at best, not being honest about the scope of the problem, which has already been linked to at least 12 deaths.

In the late 1980s, car maker Audi suffered from a similar "unintended acceleration" malfunction, which led to a 50 percent plummet in the resale value of the line. Many auto industry experts are waiting to see if Toyota suffers the same loss, with the dangerous defect dragging down Toyota resale values as much as, or more than, the company's stock price.