When Toyota Motor Co. announced plans to launch an all-new luxury arm in the late 1980s, the move was roundly dismissed by the German and American automakers who then ruled the up-market roost. With Lexus now the top-selling luxury brand in the U.S., the competition has learned to take Toyota seriously.

For the first time, Lexus has lifted the covers on the strategy that has made it so successful. And in a lengthy conversation with TheCarConnection, the Toyota division has outlined plans that could make it even more of a force to be reckoned with as it moves up-market and expands its presence in markets outside North America.

“You’re seeing the weight and might of Toyota saying it wants Lexus to be one of the pre-eminent brands in the world,” summed up Denny Clemens, the man running the Lexus brand in the U.S., the marque’s largest and most important market.

Clemens told TCC he wasn’t surprised that the competition initially underestimated Toyota’s ability and resolve. It is the automotive equivalent of the tortoise, typically slow out of the box. But if there’s a finish line in the automotive race, Toyota has shown its ability to get there fast. And it’s now ready to speed up, Clemens suggested.

That will translate into a flood of new product for Lexus, some aimed at new segments.

Hybrid power

In keeping with parent company Toyota’s environmental push, Lexus used the New York Auto Show to formally launch the first-ever luxury hybrid. A version of the RX 330 crossover, it boasts better mileage, but Lexus will market the new vehicle by focusing on how hybrid technology also can boost performance.

“We’re never going to be a horsepower company,” cautioned Clemens, stressing Lexus will not enter the low-volume performance niche crowded with the likes of BMW’s M series, Mercedes-Benz’s AMG and Cadillac’s new V-Series. But he acknowledged that power does matter to many buyers, so Lexus won’t ignore performance.

A notable difference between European and Asian luxury brands is that German makes, in particular, tend to offer a wide range of variants; there are 14 different versions of the BMW 3-Series alone. Lexus won’t try to mimic that strategy, but it will increase its offering, Clemens predicted. There could be several versions of the next-generation IS, including one aimed at performance buyers.

Of particular interest to Lexus is the so-called “hi-lux” segment dominated by Mercedes’ S-Class, and to compete, there could be several variations of the next LS430 which, Clemens believes, “has a lot of potential to move up.” Exactly how far Lexus can go is under study. It’s not likely to build a Maybach fighter, but one concept under study — not yet approved, Clemens stressed — is a “highly customized car in the $150,000 range.”

Virtually all future Lexus models will be offered with all-wheel-drive, at least in option form. That fits a core value. Lexus buyers want security, whether it’s the ability to hold the road in the worst of weather, or simply the security of knowing they’ll be taken care of by their dealer.

The automaker has been slow to expand its retail network, in part to ensure it only signs on retailers willing to commit to a rigid customer service ethic. The goal is to add three or four more dealers this year, and then start filling in some of the gaps in the coverage. Lexus is seriously under-represented in some major cities, such as Philadelphia, where it only has one outlet.

Intermittent failure

Not everything Lexus tries succeeds. The IS series has not delivered the anticipated volume, though it has drawn in a younger buyer, average age 31. That’s a demographic segment Lexus does not see much of, its typical buyer closer to 52.

Skeptics may find it a bit self-serving, but Clemens insists that doesn’t really matter. “Everybody’s so focused on youth, but I’m focused on doing business.” It’s how Lexus gets there that runs counter to typical industry practice.

While Lexus clearly hopes to keep sales growing, Clemens insists volume is nowhere near the top of the list in the marque’s business priorities. Dealer and corporate sales margins come first.

“We’ll actually cut production to protect dealer grosses,” he explained. Part of the strategy is to maintain an unusually low inventory level, around 20 days supply, or barely a third of what is considered the industry norm.

While Lexus has used some sales incentives over the years, it focuses on the most low-key approach, such as dealer cash. Conventional rebates are out, and zero-interest loans are absolute anathema, according to Clemens. “We don’t think you can drive demand in a luxury brand with incentives,” and even if you do get a short-term bump, the longer-term impact is a bad one, tarnishing brand image and damaging residuals.

If Lexus has a weakness, critics contend it’s a lack of consistency across its product line. Clemens does not disagree. Part of the problem dates back to the original way Lexus was set up. While it had some input back at corporate headquarters, it didn’t really have a major voice. And that meant that when it came to product, Lexus served primarily as a U.S. (and to a lesser degree, a European) marketing arm for a hodgepodge of vehicles sold by various Toyota divisions back in Japan.

With the next cycle of products, starting with the 2006 replacement of the GS, that will change dramatically.

Toyota has taken a series of significant steps to elevate Lexus’ status. It has created a separate board of directors for the division, added a unique Lexus design center and, perhaps most significantly, it has set up a Lexus distribution channel in Japan. So future products will be far more consistent in look and feel.

Meanwhile, Toyota sees plenty of growth opportunities in Europe. So far, the division has been an also-ran on the Continent, scoring serious numbers only in a few markets, such as Great Britain. There’ll be steps made to tailor future variants for European buyers, adding diesel engine options, for one thing.

The U.S. seems likely to remain the division’s primary market, but while Lexus may be the nation’s top-selling luxury brand right now, Clemens told TCC that remaining number one is not something that will drive strategy.

He certainly would like to keep demand building, but if it simply tracks the anticipated growth in the American luxury market, that would be fine, the executive said, suggesting that could yield volumes in excess of 300,000 by decade’s end.

Originally posted by Synergy
I can't believe Lexus is planning to maintain the same GS framework for 8 friggen years (98 - 05)...that is plain crazy?!?!?!

I can only imagine what the mainstream pubs are going to be saying about Lexus in a year or so when BMW and Mercedes launch their new $45K rockets. Lexus won't even be a contender in the class if they delay the GS launch....what are they thinking?

Originally posted by GSPOWER
Hey Synergy,
Do you go to the driving range in Fremont? I think I've seen your car there before.