How the Lexus LS400 (Almost) Killed its German Rivals
Against all odds, newcomer Lexus managed to beat the European luxury brands at their own game with the LS400. But how did they do it?
Let’s rewind a bit. The year is 1989. Gas prices average around $1 per gallon, Straight Outta Compton tops the charts, and Lexus debuts on January 11. Something which, as time went on, grew from a simple new automotive debut into a total restructuring of the luxury car market. Now today, we all know of the legend of the original Lexus LS, and what kind of car it is. Its famous reliability, fit and finish, and its creation from many incredibly talented hands. But that wasn’t the whole story of how it became such a success. Looking back now, it’s easy to see how the LS400 outperformed the competition (just look at the comparative maintenance bills). But back then, things weren’t so clear-cut.
Back in 1989, if you wanted top-shelf luxury for the upper-middle class in the US, you bought German. Specifically, either a Mercedes or BMW. Sometimes British with Jaguar. Toyota, on the other hand, held a very different public perception. While highly praised for their bulletproof reliability and ease of maintenance, most 1970s and 1980s Toyota sedans in America weren’t particularly luxurious. Some of them were fast. Very fast, in cases like the Celica Supra, which helped establish the company’s reputation for building easily modifiable and high-performance engines that could level with the best V8s of the time.
But when it came to luxury, the Germans generally held a certain presence that few others could match. Certainly, there was a sort of imposing mystique about rolling up in a black Mercedes 300E or BMW 5-series. Certainly, not one any Toyota could hope to match. So, how did they do it?
Well, there’s a short and a long answer to that question. The short answer lies in the simple fact that Toyota poured a billion dollars and hired thousands of employees to design a luxury car that could do everything better than the Germans, for a fraction of the MSRP. To put it another way, the original Lexus motto, “the relentless pursuit of perfection,” was taken very, very literally by the higher-ups. And so, they designed, without compromise nor argument, the pinnacle of affordable luxury full-size sedans. And in doing so, nearly put the Germans out of business. Here’s how they did it.
Perfection Achieved
As of 2024, Lexus still remains a relatively strong competitor internationally, especially in the US. But back then, Mercedes and BMW ruled the streets. Their offerings, the Mercedes W124 and BMW E34, enjoyed a monopoly throughout most of the 1980s, during the executive car boom. Knowing this, and understanding the market they sought to compete in, Toyota went out of its way to directly square up with its rivals. They even went so far as to host the Lexus LS press launch in Germany, and tested their car on the Autobahn. Their advertisements focused on emphasizing quality, safety, and prestige, even directly targeting their counterparts multiple times over.
What’s more, they stated that the price tag for this new luxury sedan was to be just $35,000 MSRP. Though originally, Lexus wanted it to be as low as $25,000. A price that stunned the competition; $25,000 was a full 40% less than a 1990 Mercedes of the same power figures. And even $35,000 represented a significant drop from its rivals. By comparison, a similarly-equipped Mercedes 420SEL was $62,500. The German automakers went so far as to purchase several new LS models and dismantle them before disputing the price, citing Lexus as artificially lowering the value to undercut their competition. Toyota’s reply, on the other hand, was that the Germans simply overpriced their own cars.
Despite all this, customers left Lexus dealerships satisfied with their brand-new LS400. A car that, at first, had teething issues, like any other new car. Several of these issues resulted in the inevitable recall, which normally might tank any brand-new marque. But Lexus used it as a PR opportunity. They went above and beyond, fixing about 8,000 customer cars in less than three weeks, even detailing the interiors and filling the fuel tanks. The public (and German and British marques) were stunned at this level of customer service, virtually unheard of in the industry. Mercedes and BMW, on the other hand, watched in horror as their sales plummeted, to the tune of about $1 billion/year. Lexus was winning. And Lexus did it by building a better car, selling at fair price, and treating customers and staff excellently. A feat which, sadly, isn’t repeated nearly enough.
The Aftermath for the LS400
Lexus, as a brand, thrived while most other luxury brands struggled. Even brands like Infiniti and Acura, which debuted at the same time, simply couldn’t compete with the LS400 in terms of features, quality, and reliability. Lexus sales tripled that of BMW in 1990, a trend which continued throughout much of the early 90s. However, by 1994, the US government imposed a new 100% tariff on luxury import car brands, which caused the LS400 base price to skyrocket. By 1995, a new LS400 retailed just over $51,000, with options and dealer markups escalating that even more.
While this evened the playing field a bit and incentivized buyers to return to marques like Cadillac and Lincoln, Lexus had firmly established itself and gained popularity among the middle class. Meanwhile, the German and British automakers scrambled to create new vehicles, debuting models such as the W140 Mercedes in 1991. A car which, by then, had seen a decade of development time.
The Japanese entered into a seemingly Sisyphean struggle within the US luxury car market. They faced two battles: an early 90s economic recession, and a public perception favoring European luxury. A fact not helped by the Japanese Yen prices fluctuating drastically, leading to the original price increase for the LS400 to $35,000. And yes, the LS400 is, technically, a superior vehicle on paper to many others in its class. But lots of “superior” vehicles fail to succeed. In some cases, even killing new brands, or bankrupting long-standing ones.
In truth, Lexus owes its initial success to a combination of several factors. They produced an exceptional vehicle, for a reasonable price, with impeccable service, and built said vehicle to last. This engendered an early following, especially in two crowds: people looking for an ultra-dependable luxury car (good luck finding that in the late 80s). And people who want a less expensive but just as prestigious alternative to something like a BMW 7-series. Early-90s Lexus practically wrote the book on reliable luxury. And they garnered such a reputation that they outsold all their German rivals combined. Coupled with the recession and tariffs, and in an alternate universe, there may well not be a single Mercedes, BMW, or Jaguar dealership stateside today.
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