Article - Lexus dealers' No. 1 priority: Making sure quality is not an issue
02-11-08, 02:55 PM
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Article - Lexus dealers' No. 1 priority: Making sure quality is not an issue
Stefan Smith
Age: 60
Dealer since: 1979
Dealership: Lexus of Memphis, Memphis, Tenn.
Average monthly sales: 110 new, 58 used
Dealer council's top concern: Vehicle quality
Quote: "It's no secret that in the past few years there's been some quality issues within Lexus that we did not have to deal with in the past."
Lexus dealers' No. 1 priority: Making sure quality is not an issue
Automotive News
February 10, 2008 - 2:00 pm ET
Stefan Smith says there are two ways dealers can handle vehicle quality issues: You can ignore them. Or you can get your arms around them and handle them in a "Lexus-like way."
Smith, chairman of the Lexus National Dealer Advisory Council, says Lexus dealers chose the second approach when faced with un-Lexus-like vehicle recalls over the past few years.
When customers brought in their vehicles for repairs, Lexus dealers threw in a lot of perks such as car washes, tanks of gasoline and, in some cases, vehicle pickup and drop-off — and maybe even a box of candy.
Vehicle quality is the cornerstone on which Lexus built its reputation. Its dealers are working hard to make sure it stays that way, Smith says.
"You take good care of the customer where they'll say, 'Yeah, I had an issue, but let me tell you what they did,' " Smith says. "There are few products that never break."
He spoke with Staff Reporter Arlena Sawyers.
What challenges do Lexus dealers face in the next year?
We don't have any new product launches to speak of in 2008. We have the new LX 570, which replaces the LX 470 sport-utility. Then we have the launch of the "F," which is the performance element that Lexus is getting into. We hope it will compete with BMW M series and Mercedes AMG. But those are small numbers.
In our core product — like ES and RX, IS — we don't have anything new for '08. So we're going to go through the entire year with virtually no new products. That's the biggest challenge I would say that we have.
Can Lexus' F brand compete with BMW's M series and Mercedes' AMG performance brands?
I personally have not driven one. I've seen it. It looks quite well. If you look at all the elements with regard to horsepower, handling, torque, cornering and all that, it appears that it should compete. The test will be whether the consumer feels that way or not.
Performance people tend to have a degree of loyalty that may be even higher than that of people who drive other cars. But they also like the latest and the coolest. We think we have all the elements in this car that will make it a success in that market.
What are the dealer council's top concerns? How is the factory responding to those concerns?
It's no secret that in the past few years, there have been some quality issues within Lexus that we did not have to deal with in the past. The council (went to) Japan, where we met with the Toyota Motor Corp. board of directors.
That (quality) was an issue we talked an awful lot about. It has been the strength of our franchise, and we want that to remain that way. They basically told us they were aware of that and the steps they had taken to ensure that (quality) would not be an issue going forward.
What are they doing?
They looked at the issues and said, "What's creating this problem?" Was it an engineering problem? Was it a production problem? Was it a vendor? All manufacturers are looking for ways to reduce the new-product cycle time and to reduce the cost of developing those new products. This isn't just Lexus and Toyota.
They (Lexus) started using a lot of computer models and reduced the number of prototypes. So they went back and relooked at a system more in line with what we've done in the past with regard to engineering, prototypes and so forth.
They found out they can't cut the number of prototypes that much. Technology is a great thing, but it can only take you so far.
What is your brand's pricing strategy? Does it work?
Yes. We've always had a price/value pricing strategy. We want the customer to see the value based on the price, particularly compared to our competition. That's always been Toyota's theory.
They try to bring their products in at a midprice range and have more for less, so to speak. That's where we've always been.
Pricing is not an exact science. Who will eventually price your product is the consumer. Your price is too high, he's going to tell you — because he's not going to buy it.
Then you either have to reposition it, which is a fancy way of saying cutting the price, or you have to use incentives. We would prefer not to get into that game, particularly in the luxury business.
Are your dealers making money on new-car sales?
Yes, sure. We've probably got the highest gross per vehicle retail of anybody.
What's missing in the Lexus lineup?
We have asked for and not gotten a sport-utility that would compete with, say, (Cadillac) Escalade or a (Chevrolet) Suburban-type vehicle. We'd like a vehicle with two captain's chairs in the second row where you can walk through to get to the third row. And then third-row seats that fold down flat. We've never gotten there.
Are you worried about the high percentage of sales that SUVs represent for Lexus?
Not really. If you really look deep into it, you'll find that the RX series is the big number there. That's more of a crossover vehicle than an SUV. It's an SUV body on a car chassis, so it rides like a car and works like an SUV. Even though we call it an SUV, it probably comes closer to being a passenger car than the other.
Do your dealers have the right product mix and overall marketing strategy to be successful?
Yes. But that changes all the time. That's why it's so important to have new products on a consistent basis. What's hot and what's not — that keeps changing.
That's one of the strengths of Toyota. They build what people want. They don't build what they want and then try to sell them to people.
Is quality where it needs to be?
I think our quality is good.
Have we had some issues? Yes, we had a couple. But I think we've figured out why. The thing about Lexus is our quality. Even when we have a couple of issues, we're better than most.
What does the factory need to do to help you sell more vehicles?
There are some segments of the market Lexus doesn't compete in as well as we would like. The GS 350 vs. the BMW 5 series — we don't compete that well in that segment. Would we like to? Sure. Do we compete in other segments and have an advantage? Yes, we do.
You'd like to have cars that are great in every segment, but you can't be everything to everybody.
Lexus has changed general managers three times since April: Bob Carter, Jim Farley and now Mark Templin. Does this concern dealers?
The Carter-to-Farley change was pretty much in the rotation that they normally would do. Carter had been there a couple of years, and they change them every couple of years. So when Farley came on board, it was pretty routine. The fact that Jim left and went to Ford was a bit of a surprise to everybody.
I don't think we lost anything. Mark probably has deeper roots and deeper ties with Lexus than Farley did. We don't think we lost anything at all with Farley leaving and Templin coming in.
If we had any concern, it would be (former Toyota Motor North America president) Jim Press, Farley and (former Lexus division vice president of marketing) Deborah Wahl Meyer — upper-level management — leaving to go work for competitors. That's something we hadn't seen in a long, long time at Toyota.
We preferred it not to happen. But if you go back and look at Toyota and Honda when they were just getting started back in the mid-1970s, you know where they got all their people from: Ford, Chrysler, General Motors. It's kind of in reverse now.
How much volume can Lexus get before it moves from premium luxury to just an expensive mass-market brand?
I definitely think there is a tipping point. Whether or not I'm smart enough to be the guy to know what that number is, I'm not sure.
If you look at our growth, Lexus has been introducing new products into different segments of the market. It's not like we're selling more LSs or more ESs. From time to time, your market share goes up. But we've done it by adding cars that compete in segments that we really never have been in. We call it intelligent growth.
Another thing that separates us: We have pampered, taken care of, done special things for our customers. There is a point where that's hard to do if you've got too many people in the basket.
To this point we've been successful in maintaining that level of service, even though our volume has consistently grown.
Is there a point where we might not be able to do that? I think there is, but I'm not sure what it is. c
Automotive News
February 10, 2008 - 2:00 pm ET
Stefan Smith says there are two ways dealers can handle vehicle quality issues: You can ignore them. Or you can get your arms around them and handle them in a "Lexus-like way."
Smith, chairman of the Lexus National Dealer Advisory Council, says Lexus dealers chose the second approach when faced with un-Lexus-like vehicle recalls over the past few years.
When customers brought in their vehicles for repairs, Lexus dealers threw in a lot of perks such as car washes, tanks of gasoline and, in some cases, vehicle pickup and drop-off — and maybe even a box of candy.
Vehicle quality is the cornerstone on which Lexus built its reputation. Its dealers are working hard to make sure it stays that way, Smith says.
"You take good care of the customer where they'll say, 'Yeah, I had an issue, but let me tell you what they did,' " Smith says. "There are few products that never break."
He spoke with Staff Reporter Arlena Sawyers.
What challenges do Lexus dealers face in the next year?
We don't have any new product launches to speak of in 2008. We have the new LX 570, which replaces the LX 470 sport-utility. Then we have the launch of the "F," which is the performance element that Lexus is getting into. We hope it will compete with BMW M series and Mercedes AMG. But those are small numbers.
In our core product — like ES and RX, IS — we don't have anything new for '08. So we're going to go through the entire year with virtually no new products. That's the biggest challenge I would say that we have.
Can Lexus' F brand compete with BMW's M series and Mercedes' AMG performance brands?
I personally have not driven one. I've seen it. It looks quite well. If you look at all the elements with regard to horsepower, handling, torque, cornering and all that, it appears that it should compete. The test will be whether the consumer feels that way or not.
Performance people tend to have a degree of loyalty that may be even higher than that of people who drive other cars. But they also like the latest and the coolest. We think we have all the elements in this car that will make it a success in that market.
What are the dealer council's top concerns? How is the factory responding to those concerns?
It's no secret that in the past few years, there have been some quality issues within Lexus that we did not have to deal with in the past. The council (went to) Japan, where we met with the Toyota Motor Corp. board of directors.
That (quality) was an issue we talked an awful lot about. It has been the strength of our franchise, and we want that to remain that way. They basically told us they were aware of that and the steps they had taken to ensure that (quality) would not be an issue going forward.
What are they doing?
They looked at the issues and said, "What's creating this problem?" Was it an engineering problem? Was it a production problem? Was it a vendor? All manufacturers are looking for ways to reduce the new-product cycle time and to reduce the cost of developing those new products. This isn't just Lexus and Toyota.
They (Lexus) started using a lot of computer models and reduced the number of prototypes. So they went back and relooked at a system more in line with what we've done in the past with regard to engineering, prototypes and so forth.
They found out they can't cut the number of prototypes that much. Technology is a great thing, but it can only take you so far.
What is your brand's pricing strategy? Does it work?
Yes. We've always had a price/value pricing strategy. We want the customer to see the value based on the price, particularly compared to our competition. That's always been Toyota's theory.
They try to bring their products in at a midprice range and have more for less, so to speak. That's where we've always been.
Pricing is not an exact science. Who will eventually price your product is the consumer. Your price is too high, he's going to tell you — because he's not going to buy it.
Then you either have to reposition it, which is a fancy way of saying cutting the price, or you have to use incentives. We would prefer not to get into that game, particularly in the luxury business.
Are your dealers making money on new-car sales?
Yes, sure. We've probably got the highest gross per vehicle retail of anybody.
What's missing in the Lexus lineup?
We have asked for and not gotten a sport-utility that would compete with, say, (Cadillac) Escalade or a (Chevrolet) Suburban-type vehicle. We'd like a vehicle with two captain's chairs in the second row where you can walk through to get to the third row. And then third-row seats that fold down flat. We've never gotten there.
Are you worried about the high percentage of sales that SUVs represent for Lexus?
Not really. If you really look deep into it, you'll find that the RX series is the big number there. That's more of a crossover vehicle than an SUV. It's an SUV body on a car chassis, so it rides like a car and works like an SUV. Even though we call it an SUV, it probably comes closer to being a passenger car than the other.
Do your dealers have the right product mix and overall marketing strategy to be successful?
Yes. But that changes all the time. That's why it's so important to have new products on a consistent basis. What's hot and what's not — that keeps changing.
That's one of the strengths of Toyota. They build what people want. They don't build what they want and then try to sell them to people.
Is quality where it needs to be?
I think our quality is good.
Have we had some issues? Yes, we had a couple. But I think we've figured out why. The thing about Lexus is our quality. Even when we have a couple of issues, we're better than most.
What does the factory need to do to help you sell more vehicles?
There are some segments of the market Lexus doesn't compete in as well as we would like. The GS 350 vs. the BMW 5 series — we don't compete that well in that segment. Would we like to? Sure. Do we compete in other segments and have an advantage? Yes, we do.
You'd like to have cars that are great in every segment, but you can't be everything to everybody.
Lexus has changed general managers three times since April: Bob Carter, Jim Farley and now Mark Templin. Does this concern dealers?
The Carter-to-Farley change was pretty much in the rotation that they normally would do. Carter had been there a couple of years, and they change them every couple of years. So when Farley came on board, it was pretty routine. The fact that Jim left and went to Ford was a bit of a surprise to everybody.
I don't think we lost anything. Mark probably has deeper roots and deeper ties with Lexus than Farley did. We don't think we lost anything at all with Farley leaving and Templin coming in.
If we had any concern, it would be (former Toyota Motor North America president) Jim Press, Farley and (former Lexus division vice president of marketing) Deborah Wahl Meyer — upper-level management — leaving to go work for competitors. That's something we hadn't seen in a long, long time at Toyota.
We preferred it not to happen. But if you go back and look at Toyota and Honda when they were just getting started back in the mid-1970s, you know where they got all their people from: Ford, Chrysler, General Motors. It's kind of in reverse now.
How much volume can Lexus get before it moves from premium luxury to just an expensive mass-market brand?
I definitely think there is a tipping point. Whether or not I'm smart enough to be the guy to know what that number is, I'm not sure.
If you look at our growth, Lexus has been introducing new products into different segments of the market. It's not like we're selling more LSs or more ESs. From time to time, your market share goes up. But we've done it by adding cars that compete in segments that we really never have been in. We call it intelligent growth.
Another thing that separates us: We have pampered, taken care of, done special things for our customers. There is a point where that's hard to do if you've got too many people in the basket.
To this point we've been successful in maintaining that level of service, even though our volume has consistently grown.
Is there a point where we might not be able to do that? I think there is, but I'm not sure what it is. c
02-11-08, 07:24 PM
#4
Lexus Fanatic
iTrader: (20)
Interesting, thanks for sharing.
Good to get the dealers point of view, not just the manufacturer.
I wonder what he felt was needed to make the GS350 compete better with the 5 series.
Good to get the dealers point of view, not just the manufacturer.
I wonder what he felt was needed to make the GS350 compete better with the 5 series.
02-11-08, 08:02 PM
#6
Very candid comments, interesting. Looks like computer modeling instead of repeated testing is a culprit. I agree, they should go back to the original tried-and-true methods which have made Lexus a reliability standard. Yeah this year is a bit soft with no new product launches save LX 570 and IS-F (announced last year), however the market is also a bit flat with the economic downturn. I definitely hope they can maintain and improve their service levels.
02-11-08, 08:26 PM
#7
Guest
Posts: n/a
2. More models. The 5 has\'
525
530
535
wagons
AWD
manual
The GS has
350
450h (Limited production)
460
AWD
The 5 is simply the standard and I don't think Lexus is trying HARD enough.
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02-12-08, 04:58 AM
#9
Lexus Champion
There seems a complete disconnect between dealer, corporate USA dealers must go through, and Japan that has yet to be addressed.
02-12-08, 05:04 AM
#10
Lexus Fanatic
It's not fair, though, or realistic, to expect dealerships to have to finish the job that should have been done correctly at the factory to start with. Their job is to do minor warrenty repairs or adjustments that somehow got overlooked during assembly.
But it is not the dealer's job...or purpose.....to be a second assembly line. Their service bays are not set up for that. An extreme example of this was back in the early 1980's, when GM built some of its worst junk on record. Some of you older guys may remember the Pontiac Fiero, a plastic-body, 2-seat car built on a factory space-frame. That car was SO poorly made, with SO many dealer repair headaches and customer complaints, that teams of GM factory engineers would travel around to various Pontiac dealerships by appointment. Customers, also by appointment, would bring their cars in on a Friday afternoon, drop them off, get a free loaner for the weekend, and in those 3 days, the factory engineers themselves (not service technicians) would completely disassemble the car down to the space-frame and chassis, re-assemble it the way it should have been done at the factory to start with, and have it ready for the customer to pick it up Monday morning....in some cases Tuesday if a lot of new parts were needed. How they managed to do this in just 2-3 days with limited dealer facilities, I don't know, but they did. You may wonder......WHY did GM itself put up with this?......a system where you had to send your top guys down to local shops to do what the assembly-lines should be doing? The answer was that Roger Smith, who was running GM at the time, simply did not care. He cared only about two things.....sales and profits. Product quality was of little or no concern to him....even if his top engineers had to get involved (they worked for a yearly salary, anyway...not by the hour, so to Smith it made no difference).
This is not just hearsay either. The 1984 Fiero I test-drove was the poorest-assembled new car I ever driven....worse than 1980's Hyundais. Many things on it were defective.
What does all this have to do with today's Lexus shops? Not much, of course......today's Lexus vehicles are a long way from those of GM and Chrysler 25 years ago. But it still illustrates the point that the factory cannot just sit back and let dealerships do their quality-control work for them. It is not fair, or even feasible, and will quickly get an automaker in trouble.
But it is not the dealer's job...or purpose.....to be a second assembly line. Their service bays are not set up for that. An extreme example of this was back in the early 1980's, when GM built some of its worst junk on record. Some of you older guys may remember the Pontiac Fiero, a plastic-body, 2-seat car built on a factory space-frame. That car was SO poorly made, with SO many dealer repair headaches and customer complaints, that teams of GM factory engineers would travel around to various Pontiac dealerships by appointment. Customers, also by appointment, would bring their cars in on a Friday afternoon, drop them off, get a free loaner for the weekend, and in those 3 days, the factory engineers themselves (not service technicians) would completely disassemble the car down to the space-frame and chassis, re-assemble it the way it should have been done at the factory to start with, and have it ready for the customer to pick it up Monday morning....in some cases Tuesday if a lot of new parts were needed. How they managed to do this in just 2-3 days with limited dealer facilities, I don't know, but they did. You may wonder......WHY did GM itself put up with this?......a system where you had to send your top guys down to local shops to do what the assembly-lines should be doing? The answer was that Roger Smith, who was running GM at the time, simply did not care. He cared only about two things.....sales and profits. Product quality was of little or no concern to him....even if his top engineers had to get involved (they worked for a yearly salary, anyway...not by the hour, so to Smith it made no difference).
This is not just hearsay either. The 1984 Fiero I test-drove was the poorest-assembled new car I ever driven....worse than 1980's Hyundais. Many things on it were defective.
What does all this have to do with today's Lexus shops? Not much, of course......today's Lexus vehicles are a long way from those of GM and Chrysler 25 years ago. But it still illustrates the point that the factory cannot just sit back and let dealerships do their quality-control work for them. It is not fair, or even feasible, and will quickly get an automaker in trouble.
Last edited by mmarshall; 02-12-08 at 05:12 AM.
02-12-08, 05:22 AM
#11
Lexus Champion
I'd say that sums it up for any automaker including Lexus. They are in trouble, will be for the next few years or longer until something changes drastically and the faster the better. I believe, from my own experiences, the fault lies with corporate USA mishandling things, and some dealers have helped themselves into a problem too by giving excuses to people to explain away serious defects when they should have insisted something be done for the people.
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