BRUSSELS - Ten years after Lexus first took on European luxury-car makers in the United States, the battleground is shifting to Europe. Toyota is preparing an assault on European - read 'German' - luxury-car makers by creating a separate Lexus franchise offering products tailored to European tastes, along with top-notch service and quality.
The Lexus franchise is being offered to select Toyota dealers in Europe with the promise of a large, profitable territory and a five-vehicle range within the next 24 months.
Why relaunch Lexus now, when once-weak competitors such as Audi, Alfa Romeo and Jaguar are gaining strength from strong new products?
1. Making Lexus a success in the United States was Toyota's first goal for the brand. With that accomplished, Toyota is looking to Europe.
2. European import quotas on Japanese cars expire at the end of the year.
Lexus' goals for Europe are modest. It wants to sell 50,000 units annually by 2003, through 200 exclusive dealers. This year's target is about 12,000 units of the new Lexus IS 200 and total Lexus sales of 18,213 units, up from 7,348 in 1998.
Akira Imai, Toyota Europe's new president, said, 'It may have been a mistake not to launch Lexus as a separate brand in Europe. But we're fixing the problem.'
Javier Contijoch, Lexus brand manager in Europe, agreed. 'Toyota is spending heavily,' he said. 'We are asking Japan for the moon. The plan is to base the relaunch on a full set of high-quality products that are very desirable.'
Competitors and auto analysts say it will be harder for Toyota to make Lexus a success in Europe than it was in the United States.
'Look at what happened in the United States,' said Juergen Hubbert, head of DaimlerChrysler's Mercedes-Benz passenger-car unit. 'Their prices were low, and sales went up in the beginning. But the cars are now as expensive as ours, and customers have returned to us.'
Even with a broader product range, Lexus will face an uphill fight, said John Lawson, auto analyst with Salomon Smith Barney in London. Lexus sales in Europe have been 'miserable,' he said, and the division needs badly to create an upscale image.
Juan Jose Diaz Ruiz, Toyota's executive vice president for sales and marketing, said Lexus' biggest challenge will be creating customer awareness. 'We need a Lexus dealer organization with strong and personalized service. But our task for the next 12 months is to build the brand around our core, the new IS 200. We can add emotion and niches, like a four-by-four, later.'
Lexus' top European seller will be the new small IS 200, which debuted May 2. The IS 200 competes with the BMW 3 series, the Audi A4 and the Mercedes-Benz C class.
Lexus is using price as a competitive tool, but the gap isn't as large as it was when the LS 400 premiered in the United States in 1989. Lexus prices in Germany, Europe's biggest car market, range from 50,000 German marks, or about $26,350, for the IS 200 to about $64,300 for a fully loaded LS 400. But there is a competitive edge. The IS 200 costs 15 to 20 percent less than comparably equipped rivals. Unlike the competition, whose base models have four-cylinder engines and limited features, the IS 200 comes fully loaded with only one engine, a 2.0-liter straight six-cylinder.
In most European markets, Lexus has been sold since 1990 through 280 Toyota dealers without dedicated showrooms or staff for the luxury brand. In December, they were given a two-year notice that their contracts were being canceled. During the next two years, Lexus will sign up about 200 dealers and improve its presence in key markets where it is now weak, such as Germany, France and Italy.
In the United Kingdom, Lexus' biggest market, all 54 Toyota dealers selling Lexus have agreed to operate separate franchises. But Germany is the market Lexus would most like to crack. 'We believe it can account for 50 percent of our sales in time,' Contijoch said.
No dealers have signed agreements in Germany. Lexus still is negotiating with the distributor and possible dealers. Its cars still are sold at 95 Toyota stores.
On the way
In the next two years, the IS 200 will get new engines - including a diesel and a four-cylinder.
A coupe and the small Lexus RX 300 sport-utility also will arrive, along with replacements for the large LS 400 and mid-range GS 300 that are better modified for Europe.
Other niche vehicles will follow, but Lexus won't dip in-to the lower-medium segment with cars the size of the Audi A3.
The average dealership, with tooling and initial car stocks, will cost about 1.5 million euros, excluding the price of land. New facilities have to be completed by 2003. Dealers are being told they can expect to sell up to 250 cars annually within four years, close to the U.S. average. The dealer profit margin will be about 19 percent with one-third based on performance.