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3 Lessons for Green Cars From Toyota on Money, Money, Money

Managing perception is nothing new for alt-fuel vehicles: Part of what made startup Tesla Motors so high-profile for such a small-scale, young venture in its early days was that it refuted the longstanding perception of electric cars as slow, utterly un-slick vehicles for do-gooders. Now one of the biggest of the bunch — Toyota (s TM), the hybrid leader — is writing the next chapter in green car perception. Emerging from the maelstrom surrounding its multimillion-car recall, the automaker will face one basic challenge: to polish consumers’, partners’ and shareholders’ perception of the company and its vehicles.

As regulators dig into the root cause of the reported incidents in Toyota vehicles, and as the numbers come in on how the company is weathering the storm in terms of market share and its financial outlook, some lessons are beginning to emerge about what types of tools the next generation of plug-in and hybrid car makers will need in their arsenal to earn — and keep — good green mojo among consumers.

Save incentives for when you need ’em: Toyota has never been as free-wheeling with incentives to move cars off dealers’ lots as some of its Detroit competitors. But after its worst sales in five years last month, the company has pulled out the stops, offering two years of free maintenance to current Toyota owners who buy a new vehicle from the automaker, as well as subsidized leases and zero-percent financing for some models — an aggressively “outrageous step,” as Autoblog puts it, and the first shot fired in what could be a very pricey incentives war among automakers. According to Edmunds, the incentives are working — for now, at least — helping to bring Toyota’s retail market share up to 16.8 percent, compared to 12.8 percent last month.

Keep an eye on residual value: Sales may be picking up, but as the Car Connection points out today, the recalls could hurt Toyota’s leasing and sales for some time to come, depending on how they affect estimates of residual value — or how much a used vehicle will be worth at the end of its lease.

“ALG attributes some of a vehicles resale value to its brand equity,” explains the Car Connection, “which will remain bruised for years due to this recall, even for vehicles unaffected by the recall.” The site notes a Kelley Blue Book prediction that used Toyota vehicles will see “a cumulative depreciation of 4 to 5 percent…by the time the recall effort is complete — which could potentially lead to an increase in value for some vehicles that directly compete with Toyota models.”

This emphasizes the importance of cultivating a strong residual value for green car makers. Residual value is a big unknown for electric vehicles, hinging largely on estimates of how much the battery’s value will depreciate — a figure that in turn could be affected by how much value it holds for emerging secondary markets, such as grid storage, after it’s useful life in vehicles runs out (after about eight years on the road). Nissan, which launched a new battery recycling joint venture last fall, has been particularly active on this front.

Expect a recall, build a business that can weather it: Toyota is hardly the only automaker to receive complaints of possible defects — it’s a hazard of manufacturing complex products at massive scale. Consumer Reports has found that while, “Toyota-built vehicles made up the highest percentage” of complaints filed with the NHTSA related to sudden acceleration (41 percent), as many as 20 other brands also drew complaints about this type of incident.

While we can certainly hope that green car makers will beat the odds and hold a near-perfect record when it comes to safety as the still-nascent market grows, chances are they won’t. Even startup Tesla Motors has already dealt with a recall — for 345 of its Roadsters made between March 2008 and April 2009, after learning last spring of a problem with rear hub bolts that were under-torqued during assembly by contract manufacturer Lotus.

Toyota, so well known for quality and reliability, highlights the importance for automakers entering the green car space of having a balance sheet that can withstand even a massive recall. As the Associated Press notes today, Toyota’s facing a gloomy year ahead — as much as $3.3 billion in lost sales and a 1.2 percentage point drop in market share to 16.7 percent, according to one analyst’s forecast — but it remains on solid ground financially. As of the end of last year, the company had $23.6 billion in cash assets, and it expects to post a net profit of 80 billion yen ($885 million) for the fiscal year closing at the end of this month, up from a net loss of 437 billion yen in the previous fiscal year.