With European sales in virtual freefall, it has all gone horribly wrong for Lexus. How can a brand that powered ahead of BMW & Mercedes-Benz to sell a record 230,000 vehicles in the USA last year, struggle to find 19,000 buyers across the whole of Europe in the same period? Glenn Brooks reports.
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Since then, things have gone from bad to worse: combined sales of the five-model line-up fell to less than 400 units in February and provisional figures for March suggest things may be even worse. It will take a huge amount of money and marketing prowess to turn the brand around but only the naïve would rule out Toyota’s determination and ability to do just that.
There is a school of thought that says Toyota never intended to push Lexus hard in Europe and challenge the status quo, that the Luxury EXport to the United States nickname was an accurate indicator of all that was being hoped for. It’s difficult to find much evidence to support that reasoning though, with steady and growing sales for the brand in Canada, Australia, China, South Korea and the Middle East as well as Central and Eastern Europe. Even in big markets where Lexus has enjoyed only the smallest of successes, such as Brazil, France or Germany, Toyota has stayed the course, all the time slavishly studying what local buyers are most attracted to in rival models. Observe how, for example, Lexus has stuck with the rear-drive IS series as its European base model, when the temptation to import the cheaper ES (its long-time best-selling sedan in the USA) must have been almost overwhelming. Toyota knows, of course, that a front-wheel drive Camry-clone would undermine the sports-luxury message that Lexus so wants German buyers to pay attention to.
Elsewhere, the final piece of a global-strategy puzzle will be pushed into place with the mid 2005 launch of Lexus Japan. An initial network of 150 dealers will start selling vehicles that will, for the first time, be unique models, not just rebadged Toyotas. The legendary long-view that the company takes was plain to see at the 2001 Tokyo Motor Show, where Lexus-badged models were displayed for the first time, beginning the formal introduction process to Japanese buyers.
Miniscule European sales
Back in Europe, however, dealers are barely able to wait for much-needed new product. The big LS 430 saloon managed only 25 sales in February – down from an already dreadful 75, year on year. The story is equally alarming throughout the rest of the range: the GS series sold 163 in the first two months of this year, versus 319 in the same period for 2002, while the brand’s newest model, the SC430 convertible, found only 16 customers in the whole of Europe in February. The RX 300 that is about to be replaced collapsed to 53 sales in February from 328 a year earlier, while IS 200 and IS 300 registrations held up somewhat better, falling to 1014 units in the first two months of 2003, from 1403 for the corresponding period of 2002.
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By GlobalDataSimply shocking
So what must Toyota do to tackle this sales disaster and how on earth did things get this bad? How would you explain to an American dealer virtually fighting off buyers outside his showroom why the brand’s entire European sales for February, in a market of more than a million vehicles, totalled 458? An even more shocking comparison: the Alfa Romeo 166, a rare sight even in Italy, managed to find 642 buyers in the same month. Clearly, there is a lot of work to do. And for the Lexus dealer network, things seem to be getting desperate. One UK-based dealer principal, who agreed only to voice his opinion after a guarantee of anonymity, put it frankly: “I don’t think Lexus GB really appreciates just how bad things are out here. Still, I hear things are far worse for German dealers. It’s difficult for us but I pity them trying to sell the GS against the new E-class or the 5 Series. We just don’t seem to even be on a BMW or Mercedes buyer’s radar any more. That worries me more than the sight of another lorry-load of LS430s that I can’t find buyers for. Without the Toyota side of the business, which is doing extremely well, we’d be in serious trouble.”
The numbers back up that dealer’s own experience and his suspicions of how bad things are elsewhere. While British retailers sold just under 9,500 vehicles last year (in a market that totalled 2.5 million), their German counterparts managed only 2,875 (total sales: 3.5 million). In France, it’s far worse: of the 2.1 million sales in 2002, only 635 were Lexus’. The damage in Europe was done years ago – at about the same time that the Lexus marketing muscle was being fully flexed in North America, the brand’s product planners took their eye off the ball in Europe, ignoring dealers’ pleas for more fuel-efficient engines, tighter suspension tuning and less ornate interiors. Now things are getting desperate and new product can’t come soon enough. The ever-larger SUVs, such as the GX 470 might make big profits in the USA but they’re hardly what dealers in Europe need. But while the full-size products continue to be largely unsuited for EU markets, an adapted version of Lexus’ American sales strategy is arguably exactly what is needed. Urgently.
Think globally but act locally
If Toyota is serious about success in Europe, and this writer believes it is, then it must modify and export its highly successful US marketing know-how. In a nutshell and to borrow from the environmentalists’ catch-phase: ‘think globally but act locally’. Recognising that trying to sell vehicles designed for North America will only ever lead to limited success in Europe, Lexus has already taken a small but interesting step. The new RX 300 that will shortly reach dealers in EU markets is to come with a smaller, more fuel-efficient engine than the North American RX 330 version. But that is not the end of the story. Toyota has learned that a ‘one size fits all’ approach will not work in Europe and that Japanese, Americans and Europeans think differently when it comes to what constitutes a fuel-efficient engine. So while hybrid versions of the RX 330 will soon appear in Japan and California, a different approach is being planned elsewhere.
European buyers have discovered that they rather like the torque and fuel efficiency of modern diesel engines, but Lexus continues to offer them only petrol units. Sources at several Japanese suppliers indicate, however, that the RX is to be the first model to receive a common rail turbodiesel. It won’t arrive until next year (about the same time as a petrol/electric hybrid version) but the fact that it is on the way is enough to show that Toyota is at last taking European sales seriously.
It can’t have escaped the product planners’ attention, either, that for all the seemingly endless new eight, ten and twelve-cylinder petrol-engined German luxury models being unveiled, diesel engines are what power the majority of Audis, BMWs and Mercedes-Benzes. So likewise, expect diesel power for the GS & LS replacements that will arrive in 2004 and 2005 respectively. Equally, don’t assume that the soon-to-be released LS 500 will necessarily make it to Europe. American dealers might be pleading for bigger V8s and a V12 but V6 & V8 diesels are what is needed in Germany, France, Italy and the UK. The high-ups in Nagoya City, remember, study Western Europe’s big four markets individually but also as a combined 10 million vehicle pie. It must be a humbling experience indeed, for such a wealthy and successful company as Toyota to have to make do with a few crumbs when it ought to be taking a small but hard-earned slice out of the mouths of its greedy German rivals.
Lexus starting point is BMW 3-Series class
Where Lexus should start its attack has always been obvious: the BMW 3 Series sector. It’s worth remembering that the IS 200 and 300 will be replaced next year and as well as featuring the much-needed range of turbodiesel engines, there will be a coupé and convertible to join the existing saloon and estate bodystyles. Sound familiar? Throw in the promised all-wheel drive versions and you soon see that Lexus may yet appear on German, Italian and French buyers’ shortlists. When the current IS series topped last year’s J D Power ownership experience survey in Germany, many a Teutonic eyebrow was raised. As buyers in the USA discovered more than a decade ago, faultless reliability and a service-obsessed dealer network go a long way towards replacing a perceived sporting and prestigious heritage.
And look east
None of us should also forget where growth in the European market is headed: Eastwards. In just over a year’s time, the centre will shift geographically sideways as 10 new countries enter the EU. If the Irish, Portuguese, Greek and Spanish experiences of the last decade are typical, incomes and consumer desires should all begin to rise markedly. It doesn’t take too much of a leap to imagine Russia as the next logical step after that. Already, Toyota’s plans are in place. Locals might long for a second-hand Mercedes but they are fast discovering that a new four-wheel drive RX 300 has a certain cachet and is unlikely to ever leave them stranded in the snow. Though today, BMW and Mercedes officially outsell Lexus there, tomorrow might be a different story. Already, the brand has a sporty and reliable image and has been successfully positioned upscale – Russians are nowadays followers of where American consumers lead. So while today’s ‘base’ model Russian Lexus is the GS (€55,000), buyers are, at other end of the scale, also offered the Land Cruiser-based LX 470. Nowhere else in Europe will you find an €85,000 Lexus. Yet.
