Lexus to take on European cars at high end of Japanese market

December 3, 2003

BY WILLIAM DIEM
FREE PRESS SPECIAL WRITER

TOKYO -- Toyota Motor Co. will bring its Lexus brand home in August 2005 to battle the Europeans who have been gaining market share in the luxury segment. When the fight begins, it will be Japanese heritage vs. European prestige.

Today, cars sold as Lexus in the United States are sold as Toyotas in Japan. By selling the same vehicles through a separate network of Lexus dealers, Toyota hopes to achieve better profit margins and keep the Europeans from claiming even more of the luxury market.

"The battle is going to be interesting," said Patrick Pelata, the executive vice president at Nissan charged with product strategy. Imports made up only 5.3 percent of the Japanese market through September, but in the luxury segments, the imports have about 40 percent. The BMW 3-series is the No. 2 luxury car in Japan, behind the new Nissan Teana and ahead of the Toyota Celsior, which is the Lexus LS 430 elsewhere in the world.

Concepts shown
At the Tokyo Motor Show in October, Toyota introduced the Lexus brand to Japanese customers with two concept cars: the LF-S, a sleek sedan that will be the next LS 430, and a crossover, the LF-X, that will battle the forthcoming Mercedes-Benz GST. Lexus debuted as a brand in 1989 at the North American International Auto Show in Detroit.

The Lexus show cars are especially interesting because they demonstrate a new design initiative for the marque, which Toyota calls L-Finesse. Until now, except for the SC 430 coupe-cabriolet, Lexus designs have been traditional, meaning European. Like Cadillac, Lexus has decided that its future is best served by taking a separate direction rather than mimicking the successful Europeans.

"I was very interested in the Lexus they showed, because they are working on their marque in-depth," said Nissan's Pelata. "It's a show car, but if they manage to keep that direction, it would be interesting. They should produce beautiful new little children."

A new look is a critical part of Toyota's strategy, because in 2005 dealers must convince Japanese customers that a Lexus LS 430 is no longer a Toyota Celsior.

"It will be interesting to see how they do that -- taking the same car they are selling one day as a Toyota and the next day selling it as a Lexus," said Tony Merigold, an analyst specializing in the Japanese market at Global Insights in London. "It will come down to image, service and the advertising package that goes with it."

Social status
There are some signs that Japanese customers will welcome the Lexus brand. Already, some owners of a Toyota Aristo or Altezza in Tokyo replace the Toyota badges with those of Lexus.

"Japanese like to dress up their cars," said Philippe Grall, training manager at Autobacs Seven Co. Ltd., Japan's leading aftermarket chain. "The prestige of the car is very important; it shows the social position of the people."

Meanwhile, European automakers are stepping up the competition for customers themselves.

Volkswagen will launch its new Phaeton after it establishes the next generation of the Passat in Japan, and VW's Bentley brand will introduce the Continental GT to Japan next spring.

Mercedes-Benz,which sells around 40,000 cars a year in Japan, developed a concept car, the F 500 Mind, for the recent Tokyo show as a sign of its commitment to the market. Mercedes has about 200 dealers in Japan in addition to a new Maybach center in Tokyo to sell that ultra-luxury car.

In addition to its popular 3-series, BMW'sMini brand is finding rapid market acceptance in Japan, selling about 1,000 units a month. Unlike Volkswagen, which delays model entries to Japan, BMW launches new cars there almost at the same time as in Germany. The new 5-series has been on sale for six months.

Porsche is only a small player, with 1,917 cars sold last year, but sales rose 19 percent in the fiscal year ended July 31. "We expect a substantial increase in the current fiscal year, not the least because the Cayenne made its debut in Japan only in May this year," said Michael Baumann, a Porsche spokesman in Stuttgart.

The fact that the European brands are foreigners could be their best defense against the coming marketing onslaught from Lexus, which will emphasize its Japanese character.

"It is prestigious to have a foreign car," said Merigold. "It will take time for Japanese consumers to accept Lexus as a competitor. I know Mercedes-Benz and BMW are worried about Lexus, but in their eyes, it is not direct competition. It is difficult to imagine that an A-class customer would buy a Lexus instead."

While it will compete hard, Lexus is unlikely to sell left-hand-drive versions of its cars in Japan, which like England is a right-hand-drive country. The imported brands offer both left- and right-hand versions of their cars, and left-hand-drive versions appeal to a particular sort of customer.

"You have a choice. You can buy either one," said Grall, the Autobacs manager. Owning a right-hand-drive Mercedes-Benz is a statement of success for many Japanese, he said, while "it is snobbish when you buy the original one, even if it's not so convenient to drive."