Toyota is moving closer to its goal of setting up a stand-alone Lexus franchise in Europe.
By the end of next year, Toyota expects to have 55 Lexus dealers in the United Kingdom with new showrooms and dedicated staff.
The United Kingdom will be the first European country with Lexus outlets in full operation. It is the biggest market in Europe for Toyota's luxury brand.
The new franchise will aim for 'exceptionally high levels of customer service,' said Jan Kidacki, dealer representation manager at Lexus (GB) Ltd.
Toyota also wants to ensure the dealers are profitable. Their territories will be large enough to guarantee annual sales of about 200 units within the next 18 months, Kidacki said.
In return, dealers are being asked to spend heavily on luxurious new showrooms using a common Lexus design.
In the United Kingdom, Toyota expects Lexus sales to increase from 3,287 last year to 12,000 in 2001.
Toyota is making some changes for the new franchise:
Dealer profit margins have been revised. There will be a standard 7.5 percent margin and 1 percent reimbursement for marketing costs. Another 6 percent will be tied to performance factors other than volume targets, including developing the business.
Dealer allocations will be more closely reviewed than with Toyota's current supply system in Europe.
Although manufacturers in the United Kingdom tend to sell directly to rental companies Avis and Hertz, the Lexus franchise will stay out of the rental business. However, Lexus dealers will be able to sell to corporate fleets.
A financing package will allow dealers to borrow up to 80 percent of the required showroom investment, rather than the usual 50 to 60 percent.
The template for Lexus in the United Kingdom is the U.S. network, which was started in 1989. In Europe, Lexus models have been sold through Toyota dealers. But in December 1997, Toyota gave notice of termination to all its 67 United Kingdom dealers selling Lexus cars. Only half are expected to become new Lexus dealers.
Lexus is moving slowly in awarding franchises because 'we believe it is better to have no dealer than a bad dealer,' said Kidacki.
But the United Kingdom is further ahead than other European markets in setting up Lexus franchises. Up to 30 percent of its new dealerships should be completed by the end of the year.
By contrast, Germany has not appointed a single dealer. Lexus executives at Toyota's European headquarters in Brussels want Germany to become the largest market for Lexus cars. They plan 70 to 80 dealerships there.
Lexus sales have grown more quickly in the United Kingdom than in continental Europe. Stuart McCullough, general manager of Lexus (GB) Ltd., said sales in the United Kingdom have represented up to 60 percent of Lexus' total European volume.
Javier Contijoch, Lexus brand director in Europe, attributes the brand's appeal to the close connection between the United Kingdom and the United States. 'Lexus has a good reputation here (in the United Kingdom) because of those links,' he said.
The first Lexus showroom in Europe will open in Bristol, in the west of England, in September. It will be owned by Arriva PLC, the third-largest car retailer in the United Kingdom. It has 36 dealerships.
Lexus does not believe focusing on customer satisfaction will require a complete culture change. The brand already has a customer loyalty rate of 65 to 70 percent, managers said.
Dealers are convinced they can ensure quality by hiring new workers who are accustomed to providing good service. Nigel Kingscott, general manager of Arriva, is interviewing salespeople for Lexus' Bristol store from the retail and hotel sectors.
'The motor industry is profit-oriented, but not always service-oriented,' said Kingscott. 'We need people who are very much oriented to a cradle-to-grave customer satisfaction.'
Eddie Hawthorne, managing director of Arnold Clark Automobiles Ltd. in Glasgow, Scotland, said he has been receiving employment applications from Mercedes-Benz, Audi and BMW technicians. His Lexus store is scheduled to open in the first quarter of 2000.
Dealers are being promised an eventual range of five Lexus vehicles, which sources say will include the RX 300 sport-utility and a coupe, plus more engine options.
Hawthorne said he is confident the franchise will succeed because of its strong product line. He said interest has been high in the IS200, the new small Lexus designed for Europe. The IS200, which competes with the BMW 3 series and Mercedes-Benz C-class, gives Lexus dealers the increased volume and confidence to expand, he said.