Toyota Motor Corp.'s Lexus, which took the U.S. market by storm, has conjured up little more than a cloudy future in Japan.

Sales of three Lexus models have been about 60 percent of the company's initial targets.

The automaker aims to catch up with German rivals with the top-of-the-line LS sedan, which is scheduled for release on Sept. 19.

In the U.S. luxury car market, the Lexus brand has been the top seller for six years in a row.

Analysts say the key to success will be how to strike a balance between expanding sales and maintaining the exclusive brand image.

Lexus dealerships started operations on Aug. 30, 2005. Cumulative sales of Lexus models in Japan were 21,000 units as of the end of June.

During the first six months of this year, Lexus sales in the U.S. market increased by 6 percent year on year to 150,000 units.

Despite the recovering Japanese economy, however, domestic sales were a disappointing 11,000 units during the same period.

The stagnant performance is partly attributed to a delay in introducing the flagship LS sedan, formerly sold as the Celsior in Japan.

The three Lexus models on sale are: the IS sporty sedan, the former Altezza; the GS luxury sedan, the former Aristo; and the SC convertible coupe, the former Soarer.

Toyota completely redesigned the models for Lexus introduction.

Sales have been hampered by a recall of about 10,000 GS and IS models for defective seat belts, announced in April.

In July, Toyota started to accept reservations for the LS sedan.

Some Lexus dealers, however, cannot afford to promote sales to existing or potential customers of luxury imported vehicles, which were the expected rivals for Lexus cars.

A senior official of a Lexus dealer in Nagoya, one of the most competitive markets for luxury vehicles, said that the best they can do is try to win buyers who otherwise would move up to a high-end Toyota brand model.

Part of the reason for the poor sales, industry officials say, is Toyota's policy of prohibiting individual Lexus dealers from placing advertisements independently.

Toyota wants to protect the Lexus' exclusive brand image by using standardized ads.

"(Toyota) has restricted promotions by Lexus dealers by prohibiting them from taking individual marketing strategies," a senior official of a sales company said.

While Lexus dealers compete among themselves to retain their customers, European brands are expanding their customer bases.

A typical example is BMW AG of Germany.

BMW Japan Corp. has staged a nationwide campaign twice since August 2005, shortly before the Lexus domestic debut.

BMW marked record sales of 23,000 units in Japan during the first half of this year.

The 3 Series, the automaker's volume model, expanded the customer base by attracting a large number of female owners, which now account for about 30 percent.

The figure compares with a little less than 10 percent among owners of the IS, the primary rival of the BMW 3 Series.

BMW Japan President Jesus Cordoba said the company will continue to invest to lure new customers.

In response to the LS's scheduled debut in September, Toyota has allowed Lexus dealerships to hold individual promotions at first-class hotels in an attempt to better appeal to women.

Toyota has also relaxed restrictions on after-sales services for Lexus vehicles.

Previously, the automaker banned Toyota dealerships, located within a 50-kilometer radius of a Lexus dealer, from providing repairs and inspections of Lexus vehicles. Toyota has decreased the geographical limitation to 30 kilometers.

Yasuhiko Yokoi, Toyota's managing officer in charge of Lexus domestic sales and marketing, said the automaker refrained from high-profile marketing during the past year.

For example, Lexus dealerships are uniformly designed to create a dignified atmosphere and offer sophisticated customer services.

The latest measures introduced by Toyota will change the marketing strategy which had focused on fostering an exclusive brand image.

Toyota plans to add new models to the Lexus line beginning in 2007.

In one example, Toyota plans to add a convertible version of the IS sports sedan as early as 2008 to attract younger customers.

Longer-term projects include a two-seater sports car that would feature a 5-liter engine based on a V-10 formerly used in Formula One race cars.(IHT/Asahi: August 26,2006)

ANALYSIS: Dismal Lexus Debut Prompts Toyota To Rev Up Luxury Line

NAGOYA (Nikkei)--The Lexus luxury brand of Toyota Motor Corp. (7203) will celebrate its first year in Japan on Aug. 30. Although the line has stimulated interest among affluent people in high-end cars, only 10,000 units were sold in 2005, half Toyota's goal. While the brand seems to be having little impact here, Toyota will release a new flagship model, the LS(now Celsior), in September in a push toward a 2006 goal of 30,000 units.

Lexus "hasn't hurt our sales much," said Director Ikuo Kobayashi of Yanase & Co., a view shared by most other import dealers. The number of cars sold in Japan between August 2005 and July 2006 are 49,000 for Mercedes-Benz and 47,000 for BMWs, both up 10% year on year.

Contrary to the fear that Lexus would cut into import sales, it "appears to have stimulated consumer interest in cars with more powerful brands, like Mercedes-Benz and BMW," said Yanase President Hiroyuki Furuichi. Said one Toyota executive, "We wound up benefiting our competitors."

Toyota's biggest miscalculation about the first year for Lexus here was in not attracting enough new customers to it. Most Lexus buyers today are existing Toyota customers, and "only a little over 10%" switched from imports, said Managing Director Yasuhiko Yokoi.

One reason for this was the failure of the IS model, which industry designer Bob Sliwa calls the most Lexus-like design. Targeting younger people, Toyota priced it as low as less than 4 million yen, no longer in the same range as the luxury cars that customers like.

Another reason was Lexus dealers' priority on holding onto existing Toyota customers to the extent of leaving no room to seek out new ones.

So the release of the new LS will be Toyota's "first critical moment," said one executive. It began taking pre-orders two months before the auto's release instead of the usual one month, and by mid-August it had apparently accumulated over 8,000 orders.

Rather than wait for customers to show up, dealers are actively sending salespeople to Toyota customers with an enthusiastic pitch for upgrading from the Celsior to an LS. On Toyota's development floor, design improvements will continue up to the last minute.

By 2010, the line will double in size to eight models, including a sport utility vehicle. As for hybrids, about 30% of customers who bought the Lexus GS 450h, which hit the market in March, owned import cars, according to Yokoi. With its successor, the LS 600h, set for release in the spring of 2007, Toyota hopes for further differentiation from imports.

Import retailers say they will stay alert and do their best to compete with Toyota. The BMW Group began its BMW Individual program last year, allowing for over 2,000 possible combinations of body color, seat material and other components. Mercedes-Benz has begun offering custom interiors for its special-spec AMG line.

One surprising Lexus effect has been the upgrade of Toyota dealer offices, service areas and other aspects this year, many of them to the level of Lexus dealers. "Customers are becoming more demanding," said an Aichi dealer, as they learn how Lexus customers are treated. Many dealers are retraining employees, and Nagoya Toyopet Co. made efforts to dramatically improve the skills of sales staff in giving technical explanations.

Hoshigaoka Driving School, adjacent to an affluent neighborhood in Nagoya, replaced its highway practice fleet of BMWs with Lexus IS 250s in February, bought radio ads commenting on the change, and reportedly increased student traffic. About 70% of its students are young women, many from rich families, who could become Lexus buyers.

On Sept. 19, Toyota will unveil the new Lexus LS at the New National Theater in Tokyo. "With the LS we want to solidify our brand image," said President Katsuaki Watanabe. For the same reason, it will open a new dealership in Tokyo's fashionable Aoyama district around 2008.

It remains to be seen whether the LS will become the major step up needed to spread the Lexus marque in Japan.