Despite a recent spate of recalls among several major automakers, projections indicate that car sales may increase significantly in March thanks to new incentives designed to compensate for sales losses.

Although the automotive industry has been plagued with a recent string of large-scale recalls from both General Motors Co. and the world’s largest automaker, Toyota Motor Corp., efforts to reverse the effects of removing millions of cars from the road may be succeeding. Reports show that a new round of pricing incentives is driving March auto sales upward and setting a stronger pace for the industry’s recovery. However, concerns remain over the prospect of a price war between major companies.

According to a new report from automotive research firm J.D. Power and Associates, retail sales for new vehicles in the United States are expected to reach 883,000 units in March, marking a seasonally adjusted annualized rate (SAAR) of 9.9 million units, up from 8 million in February. Compared to March 2009, sales are projected to increase by 2.3 million units, a 25 percent year-over-year gain.

“New-vehicle retail sales increased robustly during the first half of March, and are expected to remain strong throughout the remainder of the month — setting the industry recovery back on track,” Jeff Schuster, executive director of global forecasting at J.D. Power and Associates, said. “March sales could outperform projections if the pace does not level off as expected for the remainder of the month.”

The report attributes much of the improved March sales performance to the return of warmer weather, fewer recall announcements and Toyota’s aggressive pricing incentive program, which has led to similar price adjustments from competing firms.

Automotive data analyst Edmunds.com has offered additional optimism, last week projecting that March auto sales would reach an SAAR of 13.2 million units.

“The industry has been recharged by incentives offers from Toyota and other automakers,” Jessica Caldwell, a senior analyst at Edmunds.com, explained. “There is a lot of money in the marketplace right now, and people are responding.”

In an attempt to reverse a 12.4 percent decrease in sales through February, Toyota recently began offering zero-percent financing, cash rebates, low-priced leasing and free maintenance for existing customers, Detroit Free Press reports. According to Detroit News, “Toyota’s incentives have nearly doubled since the beginning of the year… .”

Meanwhile, GM, Chrysler Group LLC and Ford Motor Co. have responded with no-interest financing offers of their own in an effort to gain market share from Toyota.

“[T]here is some risk that the incentives offered by Toyota could spark an incentive war among several automakers,” Schuster warned. “While this may lead to a temporary increase in sales momentum, it could also potentially slow the pace of long-term recovery.”

Automotive manufacturers that were forced to close factories and scale back on expenses last year are less likely to be vulnerable to competitive pressures from the current set of incentives because they have learned to operate on profit margins based around lower sales volumes. This may put American auto companies in a position to gain market share.

“The auto price war is escalating with American Honda Motor Co. offering its biggest lease deal ever, a move analysts said was designed to offset aggressive sales incentives by rival Toyota Motor Corp,” the Los Angeles Times reports. “What’s unusual about this price war is that it is being fought the hardest by Japanese automakers, which historically have resisted using large incentives to sell vehicles.”

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Resources

March New-Vehicle Retail Sales Rebound from Recall and Weather-Dampened February Levels
J.D. Power and Associates, March 19, 2010

March Car Sales Pace at 13.2 Million SAAR…
Edmunds.com, March 19, 2010

March Auto Sales Up; Highest Rate Since Cash-for-Clunkers Cited
by Brent Snavely
The Detroit Free Press, March 19, 2010

Big 3 Pressured as Toyota Ups Rebates
by Bryce G. Hoffman
The Detroit News, March 24, 2010

Even This Month, GM and Ford Outspending Toyota on Incentives
by Bengt Halvorson
The CarConnection.com, March 23, 2010

Honda Enters Price War with Toyota
by Jerry Hirsch
The Los Angeles Times, March 25, 2010