Akio Toyoda, The Man Who Can Save Lexus

Huh? Save Lexus? Toyota’s luxury brand looks to be doing just fine, thanks very much. Last year, Lexus outsold both Mercedes-Benz and BMW in the U.S. Okay, sales are down 19 percent this year, but that’s partly because of supply disruptions cause by the March 11 earthquake in Japan, and the model changeover on the GS. Lexus is still a very solid number three in the U.S. luxury market behind BMW and Mercedes-Benz, and well ahead of Cadillac, Acura, Audi and the rest.
But Lexus is in trouble. And Toyota scion Akio Toyoda knows it.

Outside the U.S. and Japan, Lexus is pretty much a bit player in the luxury sector; a distant also-ran to the German brands that dominate the space with much broader product ranges. Mercedes, BMW and Audi each sold 586,000, 609,000 and 623,000 vehicles in Europe alone last year. Lexus? Just over 17,000. Lexus has no big coupes or convertibles, no small crossovers, no sports cars (apart from the hugely expensive and largely irrelevant LFA), no wagons, and – crucially for Europe – no diesel engines. The IS-F is not a bad sport sedan, but it barely makes a ripple in the luxury-performance segment dominated by squadrons of AMG Benzes and BMW M cars.

And the U.S. sales numbers flatter to deceive: Lexus is overwhelmingly reliant on a single model, the lux-by-numbers RX crossover that retails for between $39,000 and $47,000, and accounts for 45 percent of total sales. To the end of July, Lexus had sold about 13,000 vehicles with a base price of $50,000 or more. By contrast, Mercedes-Benz’s best seller over the same period – accounting for 26 per cent of sales – was the E-class, which retails for between $48,000 and $87,000, and the company sold twice as many vehicles with a base price of more than $50,000 than Lexus.

Toyota shook the luxury car establishment to its core with the launch of the Lexus LS400 in 1989. Unbelievably smooth and silent on the road, with body gaps of millimetric precision, mirror-finish paint, and a perfect interior, the LS 400 caused utter panic in Stuttgart. Mercedes-Benz ordered last-minute revisions to its W140 S-class in an effort to match the LS 400’s refinement. As a result, the W140 arrived late and over budget, and the chief engineer responsible was subsequently fired. The LS 400 – along with Honda’s stunning NSX, which debuted around the same time – signaled the Japanese automakers were truly at the top of their game; that even Europe’s grandest marques had reason to be afraid. The Japanese were the new masters of the automotive universe.

So what went wrong? Well, if I were to sum up the extraordinary interview with Toyota CEO Akio Toyoda immediately after the reveal of the 2013 GS sedan at Pebble Beach, it would come down to this: Basically, Toyota blew it.

“Lexus was born out of a unique situation,” says Toyoda. “A single company giving birth to two brands is unique. We wanted a car to compete with the S-class. However back then we did not regard Lexus as a brand, but as a distribution channel.” And that’s a key insight. It’s why Lexus vehicles were sold for many years in Japan as Toyotas, and why Lexus did not have brand or product champions at a senior level within the Toyota organization in Nagoya.

Many of the Toyota managers who were cycled through Lexus (Japanese companies routinely moved senior managers every few years) were short termers who barely understood the concept of a luxury brand. As a result, Lexus product planning was muddled and inconsistent. Turning the quotidian Camry into the Lexus ES 250 was as bad an idea as it was when GM turned the Chevy Cavalier into the Cadillac Cimarron, but it happened because Toyota planners belatedly realized Lexus dealers needed an entry level car. The Camry’s superior reliability and quality – and the indisputably superb levels of service at the dealership that was the truly clever piece of the Lexus idea – meant Toyota got away with the ES 250. But the ES 250 also further reinforced the notion in Nagoya that Toyota and Lexus cars could basically be one and the same.

“On the one hand we wanted to differentiate Toyota and Lexus, and on the other hand we wanted efficiency,” Toyoda admits. “When we wanted to be the biggest [automaker in the world], the people [in Toyota] who understood perfection to mean expensive increased,” he says, referencing the original tagline for Lexus, ‘The Relentless Pursuit of Perfection’ and sideswiping the old guard in Toyota that wanted to cut costs at all costs. “Others thought that as we pursued perfection, our cars were perfect.” Ouch.

To fix Lexus, Toyoda has created a stand-alone Lexus division within Toyota that is responsible for the design, development and marketing of Lexus vehicles worldwide. Its senior managers all report directly to him, an organizational structure that is unique within Toyota. “Lexus never had a leader,” says Karl Schlicht, general manager of the Lexus Product & Marketing Division, an American who works in Japan as part of the new multi-national Lexus senior management team. “We went to Akio and said ‘we need a leader’. And he said, ‘I will be that leader’.”

Toyoda clearly takes that role seriously. “I am passionate about the future of Lexus, and wanted to be personally involved,” he says. “I want Lexus to be the car the most sophisticated drivers want to drive, and once they’ve driven one they never want to drive anything else.”

Akio Toyoda is perhaps the most candid Japanese CEO I’ve ever met, remarkably so for a man from a culture where saving face is all important. “Toyota once dreamed of wanting to be the biggest [auto] company. But I want to aspire for it to be the best.”As a member of the company’s founding family he clearly has the political horsepower to make significant changes to the way Toyota operates, though the lengthy gestation of the LFA supercar, one of his pet projects, suggests the forces of conservatism within the company were very deeply entrenched.

But though Lexus now has a passionate champion at the very highest level of Toyota, it’s not out of the woods yet. When asked what he thought the Lexus brand should stand for, Toyoda-san’s face clouds, and he pauses before answering: “We need to have a clear message. That’s one thing I have difficulty with – coming up with a clear definition.”

As the 2013 GS shows (pictured at top, above and at right), Lexus cars are becoming more sporty, more “fun to drive” under Toyoda’s watch. But that’s hardly a unique selling proposition in the luxury car sector these days. And you could argue the new GS still falls short of what a Lexus should be. The V-6 engine is not as silky-smooth as a Lexus demands, and the decision retain the six-speed automatic rather than use a state of the art eight-speed is unforgivable cheap-skating. (American product planners said U.S. customers would rather pay for the world’s largest in-dash display screen instead.)

Akio, just go and spend some time in an original LS400. Savor the utter refinement, the astonishing attention to detail, and the refusal to compromise. That’s where the Lexus brand DNA is buried.

Angus Mackenzie on August 23 2011 4:00 AM

If Lexus makes ES good enough to take GS buyers, then it will also take 5 series and E class buyers.