Lexus Sputters at Home

[nadepalma]

Source: http://www.businessweek.com/autos/co...215_597701.htm

FEBRUARY 16, 2006
Autos
By Ian Rowley

Lexus Sputters at Home
Toyota rolled out the marque to fend off European competitors in Japan. But so far the results have been less than impressive



With net profits of $10 billion, double-digit growth in the U.S., and GM's (GM ) spot as the world's biggest automaker in sight, Toyota Motor (TM ) President Katsuaki Watanabe has had little to complain about since succeeding Fujio Cho as the head of the Japanese automaker last June. Yet for all the great strides being taken by Toyota, Watanabe must be at least a little disheartened by the performance of the upmarket Lexus brand in Japan.

The reason? Since the Lexus marque first went on sale in Japan last August, sales have hardly set the world afire (see BW Online, 7/11/05, "Lexus to the Rescue"). Through Dec. 31, only 10,300 Lexus were sold in Japan -- considerably short of Toyota's target of 20,000. What's more, in 2006 the carmaker is only expecting to sell 40,000 Lexus -- still off the the 50,000-60,000 annual target Toyota had mentioned last year.

U.S. SUCCESS. "The start of Lexus in Japan was somewhat slower than we had expected," Takeshi Suzuki, senior managing director at Toyota, conceded at Toyota's third-quarter results announcement in Tokyo on Feb. 7. "You should evaluate the Lexus brand on a global basis rather than on how well it is doing in the Japanese market."

The slow start in Japan stands in contrast to the U.S., where Lexus has been the best-selling luxury car brand for the last six years. In 2005, Toyota sold 302,895 Lexus vehicles in the U.S. This is up 5.8% vs. a year earlier. Moreover, it's the first time a luxury brand had sold 300,000 units since Cadillac achieved that feat in the mid-1980s.

Yet at home in Japan, imports of German rivals Audi, BMW, and Mercedes-Benz continue to perform well. Together, the three German brands sold more than 106,000 cars in Japan in 2005, a 10% increase, while Japan's overall auto market contracted by 0.9%.

"PREPARED TO FIGHT." What explains Lexus' troubles at home? One big factor: savvy foreign brands beat Lexus into the market with new models. BMW, for example, launched its remodeled 3-series in Japan ahead of Lexus. Mercedes also came out with several new vehicles during 2005, including the SLK 280 luxury roadster and E280 sedan in August. Both automakers also spruced up their marketing efforts.

"Mercedes and BMW took advantage of the Lexus launch," says Koji Endo, an analyst at Credit Suisse First Boston (CTN.X ) in Tokyo. "They knew Toyota was launching the Lexus and prepared to fight."

Perhaps less predictably, foreign automakers say the arrival of Lexus has also enabled them to attract a new class of car buyers in Japan -- those who might not have considered an imported luxury car in the past. "People who went to Toyota showrooms didn't visit BMW showrooms," says Yuichiro Suzuki, a BMW Japan spokesperson in Tokyo.

WRONG MODELS? But with a little help from Lexus, attitudes are changing. BMW estimates that the number of visitors to its showrooms is up 20% since the rival's launch, and as many Japanese consider foreign brands for the first time. Customers realize that if you spend $45,000 or more, "you can afford an imported car," Suzuki says.

Toyota's choice of models may also shed some light on the sticky start by Lexus. Analysts point out that just two Lexus models were launched in Japan last August -- the GS sedan and SC convertible -- with the IS sedan added a month later. CSFB's Endo says all three models are too sporty to be big sellers in Japan's luxury sector. A truer evaluation of the Lexus will be possible after the top-of-the-line LS sedan goes on sale later this year.

Three additional models, including two SUVs, are expected in 2007. "After seeing how the LS does, we'll have a better picture," Endo says.

"HIGHLY BRAND-CONSCIOUS." Inflated price tags also may have deterred buyers. While the Lexus brand is new to Japan, luxury Toyotas are not. The GS and SC, for example, were previously sold in Japan as the Toyota Aristo and Soarer, respectively. But whereas the old Aristo cost up to around $40,000, the cheapest version of the GS on sale today is about $10,000 extra.

Of course, much of that premium is explained by higher specs -- Toyota points out that the current GS are much larger and more sophisticated than those in the last-generation Aristo. But for that kind of money some buyers will prefer the extra cachet of a European brand.

"Japanese consumers are highly brand-conscious," says Tatsuo Yoshida, an analyst at Merrill Lynch (MER ) in Tokyo. "If the goal [of Lexus in Japan] is to be a true luxury brand up against European premium brands, it won't be an easy task."

Nonetheless, Toyota executives don't seem unduly concerned. For one thing, missed targets after less than a half-ear are hardly cause for panic. For another, while Toyota agrees that early sales are disappointing, feedback from buyers has been very positive. And this point has been confirmed by Lexus owners' and auto Web sites.

NO PANIC YET. One popular price comparison ranks the IS as the sixth-best car in Japan. "We are [making efforts to lay] a solid foundation for the Lexus brand in Japan," Toyota's Suzuki says. "We're below our original [sales] target, but brand recognition, customer satisfaction, and various other indicators are very good for Lexus."

Clearly, Toyota is preaching patience. And with 15-plus years of Lexus success in the U.S., who would bet against the luxury lineup eventually making its mark at home?

[Perian]

Interesting to see how the Japanese feel about the Lexus models.

To a point, it's like American's feel about our Cadillac brand.

[MNdudeswitz]

^ Lexus isn't working because of the Japanese culture probably the most, I think their society looks down at flaunting your wealth unlike here

[mgescuro]

Originally Posted by MNdudeswitz

^ Lexus isn't working because of the Japanese culture probably the most, I think their society looks down at flaunting your wealth unlike here

Ummm... but the Japanese are very brand conscious.

Lexus isn't viewed as "premium" yet. Also teh GS and IS are essentially rebadged Toyotas. They work here becuase Toyota doesn't sell them here. But in Japan, why buy a Lexus when Luxury TOyotas exist? And for less??


Give LExus time. They have a better chance of success in the Japanese market than Cadillac does at the moment.

[mbukukanyau]

I wonder what Japanese people think of Cadillac

[Whirling_Dervish]

Originally Posted by Perian

Interesting to see how the Japanese feel about the Lexus models.

To a point, it's like American's feel about our Cadillac brand.

Not really.

2 of 3 models were sold there as Toyotas which costed less. Its common sense that not many will suddenly pay more because of a new badge. The next generation cars however will do better.

Caddy has no similarities.

[Whirling_Dervish]

Originally Posted by MNdudeswitz

^ Lexus isn't working because of the Japanese culture probably the most, I think their society looks down at flaunting your wealth unlike here

wrongo. Take a trip there. You'd be surprised.

[ZvetteGuy]

Originally Posted by nadepalma

Source: Toyota Motor (TM ) President Katsuaki Watanabe has had little to complain about since succeeding Fujio Cho as the head of the Japanese automaker last June.

Watanabe?! Sounds more like Wannabe! I'm sure that he gets by with that name just fine considering all the money he has on tap!

[Steel4ring]

The Japanese are smart. Why pay more for an overpriced Avalon or Camry?

You know, GM gets killed for badge engineering, but I see less difference in the Toyota/Lexus line up than I do in Cadillac vs. the rest of GM, with the exception of the Escalades.

[Steel4ring]

Originally Posted by MNdudeswitz

^ Lexus isn't working because of the Japanese culture probably the most, I think their society looks down at flaunting your wealth unlike here

No way Jose!!! The wealthy in Asia are far more likely to show off their wealth. Just ask any casino host in Vegas. They will tell you how over half of the high rollers or whales are from Hong Kong, Japan, Taiwan and Singapore.

In my visits to Asia I can tell you that Rolls Royces are seen quite a bit more often on the streets of Hong Kong and Tokyo, than here in DC.

[a_v_s]

Originally Posted by ZvetteGuy

Watanabe?! Sounds more like Wannabe! I'm sure that he gets by with that name just fine considering all the money he has on tap!

Eh? Watanabe is pronounced "Whah Ton Ahh Bay", sounds nothing like wannabe.

As far as lexus goes... I agree with the previous poster. The current models in Japan are basically rebadges of the Windom, Harrier, etc.

If you go to Korea, Lexus actually took over the best-selling luxury mark from BMW.

And as for Japanese not flaunting their wealth.... It's the opposite. There is a reason why one of the largest Louis Vuitton stores is in Tokyo. The japanese are really big on brand image and prestige.

[tgagneguam]

Before anyone breaks out the Clos du Mesnil, does anyone here honestly think Lexus won't succeed in the longrun? As much as it pains me to admit it, they will. The complaints we are hearing about in this article reflect similar complaints to what Lexus faced in the US in the early 90's, when it had the ES250 and LS400 as the only vehicles in the brand. "No way people will buy a gussied up Toyota over a Mercedes or BMW," people were saying. Now, 15 years hence, and as the article aptly points out, Lexus is alone in the US; it was the only luxury marque with sales north of 300,000 units, having racked up its 6th top sales performance in the US.

Toyota's constant improvement mantra pervades the Company, and Lexus Japan is probably no exception. A decade from now I suspect articles related to Lexus Japan will read quite differently... unfortunately.

[DanCBJMS1988]

Originally Posted by Steel4ring

No way Jose!!!

Sorry to go OT for a bit, and sorry that I have to act this way, but can you please not use this phrase anymore? You're making me vomit. This is my reaction to an insult to some of my friends: I'm not joking.

Anyway, I'm not suprised at the Japanese raction to Lexus. Not only is it not premium, but if this expermient fails in the JDM then Toyota will have to revert to the old-style names. For instance, what would you rather buy? A 2006 LS430 or a 2005 Celsior? I'm assuming many Japanese would prefer buying the Celsior because it's cheaper.

[a_v_s]

Originally Posted by Steel4ring

The Japanese are smart. Why pay more for an overpriced Avalon or Camry?

You know, GM gets killed for badge engineering, but I see less difference in the Toyota/Lexus line up than I do in Cadillac vs. the rest of GM, with the exception of the Escalades.

Are you talking about US market of Japanese market? If you're talking about US market, then tell me which Toyota models the IS, GS, and LS are rebadges of.

Japanese people don't want to buy an ES330, not because it's an overpriced Camry. It's not. The ES330 is a Toyota Windom. The RX330 is a Toyota Harriar. The Camry is a separate model both here and in Japan. They see the ES330, and it is exactly the same as the Windom. Give it time, and it'll succede.

When the new models arrive, it'll do better.

[a_v_s]

Originally Posted by DanCBJMS1988

For instance, what would you rather buy? A 2006 LS430 or a 2005 Celsior? I'm assuming many Japanese would prefer buying the Celsior because it's cheaper.

Cheapness has nothing to do with it. It's all in brand image. Lexus is a new marque in Japan. It would be like if GM moved the Corvette from the chevy nameplate to the Saturn Nameplate back in the 90's. Similar to when the Skyline was moved under the Nissan nameplate back in 1969 or so. Eventually people will accept it, just not right away.