Written by Doron Levin (columnist for Bloomberg)

"Toyota's Lexus brand is the Mouse that Roared"

Jan.20 (Bloomberg) -- Toyota Motor Corp.'s Lexus could be an exception proving the rule that a luxury brand needs decades in the market, or longer, before it can evolve into a status symbol.
In 2003 Toyota sold 259,755 Lexus vehicles in the U.S., up 11 percent from a year earlier, and more than (in order) BMW, Mercedes, Cadillac or Acura.
It was the fourth straight year Lexus has been the nation's No. 1 selling luxury nameplate - -a remarkable feat, considering the franchise isn't yet 15 years old.
Lexus is positioned to continue it's streak with plans for a new version of it's car-based sport utility vehicle later this year, powered by a gas-electric hybrid engine.
Encouraged by Lexus's consumer acceptance in the U.S., Toyota will introduce the brand in Japan this year, and is hoping to carve a bigger foothold in Europe, where it has run into some difficulties.
General Motor's Cadillac francise, on the rebound after several years of declining sales and image among luxury buyers, also has been trying to extend the brand world wide.

Lexis?

I can recall the 1989 auto shows in Detroit and Chicago, when U.S. auto executives -- inclduing several from Cadillac -- barely could supress their amusement at the announcement that Toyota would try to crack the luxury market with a new brand. (Lexis? Isn't that the name of the information retrieval service used by Lawyers?)
Sure, the executives cackled, Toyota builds decent enough economy cars like the Corolla and Camry, but, hey, let's not kid one another - they can't attract wealthy buyers like Cadillac, Lincoln, or Mercedes do.
Turns out that Toyota had more saavy about the luxury market than anyone imagined. Wealthy customers expect luxury features and top performance in a vehicle;they demand outstanding service as well.
Lexus delivered vehicles that scored high in quality and satisfaction ratings. The automaker also created incentives for it's dealers to provide pampering, such as personal delivery of it's vehicles.

Caps Dealership Numbers

"The European brands mat have been caught off guard in 1989," said Mike Michaels, a Toyota spokesperson. "They quickly responded. We saw them work on pricing and the sales experience."
Lexus has capped it's distribution network at about 200 dealerships in the U.S., compared with 340 for BMW, 325 for Mercedes, and 1,495 Cadillac. Toyota determined that keeping the distribution network lean would improve the profit potential for each dealer.
As such, Lexus dealers have generated substantial capital to reinvest in dealerships and inventories, thereby improving conditions for customers and spurring new sales.
The new gas-electric cariant of Lexus's RX sport utility should help a model that alreadyy has become the most popular in the Lexus lineup, acconting for 40 percent of the franchise's total sales. The RX330 gas engine models start at a price of $35,800.
Lexus believes customers will pay a premium for the hybrid engine, which will develop 270 horsepower while delivering fuel efficiency equal to that of a compact car.

Fixing Europe Sales

A Toyota Spokesman said Lexus could sell 350,000 vehicles annually, within the next five to six years, assuming continuing expansion of the luxury sector.
About 12 percent of vehicles sold in the U.S. now are classifed as luxury, up from about 8.8 percent less than five years ago, the spokesman said. Lexus has about 14 percent of the luxury market.
Toyota earns about 80 perent of it's operating profit in the U.S. The automaker is aiming to sell as many as 60,000 Lexus cars in Japan by 2006 through 180 dealerships. Toyota also is planning to open Lexus dealerships in china in 2005.
In Europe, Lexus sales have amounted to only about 20,000 annually, a tiny sliver of the continent's luxury market. Toyota has been caught without diesel-engine capacity, which many European customers prefer in luxury models.
The automaker hopes to triple Lexus's sale on the continent by 2010, in part by offering diesels and hybrids.
"It's just a matter of time before Lexus busts through the Teutonic" preference in Europe for BMW and Mercedes, said Jeff Kuhlman, a Cadillac spokesman.

Cadillac's new STS

No. 1 producer General Motors Corp., enjoying a resurgence of it's Cadillac brand, sees Toyota as it's most formidable competitor and Lexus as the tip of the spear. Cadillac plans to introduce the STS large sedan to replace the Seville in the U.S. later this year. A version of the Saab 9-3 restyled as a Cadillac and built in Sweden, may be headed for European showrooms.
Rick Waoner, GM chief executive officer, told Bloomberg TV the automaker also is considering an even larger Cadillac, selling for more than 75,000 to compete with Lexus's flagship, the LS430, Mercedes S-class, and BMW 7 series.
No one these days underestimates Lexus, which may be why brand managers have softened their slogan recently to "passionate pursuit of perfection" to "relentless pursuit of perfection."

eh..al ot of typing. Couldn't copy and paste this one..

 

Dow Jones Business News
Toyota Mulls Ways to Drive Lexus Against BMW, Mercedes
Thursday January 15, 2:20 pm ET
By Norihiko Shirouzu, Staff Reporter of The Wall Street Journal


DETROIT -- Toyota Motor Corp. (NYSE:TM - News) wants to expand its Lexus brand significantly by beefing up a sporty entry-level luxury model and possibly adding to its product line a couple of vehicles priced above $70,000 that would put Lexus in direct competition with DaimlerChrysler AG's (NYSECX - News) Mercedes-Benz and BMW AG.
Denny Clements, head of the Lexus brand and a senior executive at Toyota's U.S. sales unit in Torrance, Calif., told The Wall Street Journal he couldn't be happier with the way his brand is performing. Lexus sold 259,755 vehicles last year, up 11% from 2002.

Mr. Clements is aiming to boost Lexus's annual sales to 350,000 vehicles within the five years, though its sales this year are likely to show only a modest increase at best.

Still, he said unleashing an assault on BMW's near monopoly on younger buyers with its 3-Series cars and Mercedes' equally strong grip on consumers buying luxury cars priced above $70,000 "should give us a huge opportunity to grow Lexus."

He noted Mercedes has a dozen model variants that are priced over $70,000, while Lexus has none. The brand's flagship car, the LS430 sedan, starts around $ 54,000. Mr. Clements said recent Lexus surveys have shown its customers are interested in buying higher-priced vehicles, and in some cases leaving Lexus to buy Mercedes cars. "So we are asking [Toyota's product planning office in Japan] for more product offerings at the higher end," he added.

Mr. Clements declined to be specific about what type of super-luxury vehicles he is looking for, but noted that among them are "a sedan" and "a sports car."

In the entry-level luxury segment -- which has been growing as vigorously as the segment for $70,000 or above luxury cars -- Mr. Clements said Lexus is looking to offer more body styles and other variants for the redesigned IS car in an effort to dislodge BMW's near monopoly on sporty, entry-level luxury-car buyers. Lexus hasn't said exactly when the redesign IS would arrive in dealer showrooms, but one Toyota official said it should come within the next two to three years.

Mr. Clements noted BMW sells about 10,000 3-Series cars a month, which he said are offered in several body styles, including convertible, and with powertrain and other options. "A half of those sales are coupes, and I don't even have an IS coupe in my lineup," he said.

Currently, Lexus offers two IS models -- a sedan and a hatchback. "We need for sure a coupe, a convertible and a sedan with multiple powertrain offerings," said Mr. Clements. He went on to say, "It's important for us to be competitive in the entry-level luxury segment" to capture those 30-something consumers who are buying BMWs. "Those are young professionals that are going to be luxury-car buyers for the rest of their lives."

-By Norihiko Shirouzu; The Wall Street Journal; 313-963-7810