LOS ANGELES - It has taken 10 years for Lexus to become a luxury brand icon. In that time, Lexus has moved ahead of its long-established European rivals, and may become the first import luxury make ever to outsell Cadillac and Lincoln for a full year.
For the first eight months of 1999, Lexus led the luxury pack. It was 3,000 sales ahead of Mercedes-Benz, nearly 6,000 ahead of Cadillac and about 11,000 ahead of Lincoln.
Lexus has grown despite some difficulties in the mid 1990s, when a strong yen and a wave of resurgent German products made Lexus vehicles less appealing.
But in the past two years, Lexus has thrived with the GS 300 and 400 sedans and the RX 300 sport-utility. Sales have soared from 97,000 in 1997 to a projected 175,000 this year - at least that's what the billboard in the Lexus lobby exhorts employees to achieve.
Lexus says its 1999 total would be even higher if it had sufficient inventory. It says its dealers had only a seven-day supply of vehicles on Sept. 9. That low supply could cost Lexus the luxury sales title this year, as others might have the cars in stock to crank up the volume in December.
'You can see what's limiting my sales. If I could get more, I could sell more. But I also don't want to get greedy,' said Bryan Bergsteinsson, Lexus Division general manager.
But while winning the luxury sales title might be nice, sales numbers are not Lexus' primary goal, Bergsteinsson said.
'If you outsell everyone else, it's a nice validation from the consumer,' he said. 'But we're not a volume line like Toyota. We focus on luxury, on customer satisfaction.'
But soaring sales have become an issue. With just 184 stores - far fewer than the German and American marques - Lexus is finding that some of its dealers are overrun with customers.
To deal with the increased volume, Lexus dealers have added 2,000 employees in the past two years. But that means many salespeople must share office space on weekends, said Mark Franceschi, general manager of Lexus of Brookfield (Wis.). And with 1 million vehicles in operation and growing quickly, the back shops are getting more crowded, too.
Said Danny Davidson, owner of Lexus of Riverside (Calif.): 'Making people wait a week for service is a problem, and that's happening with several dealers. To keep CSI high, you have to change with the times.'
With new products and entries on the horizon, Lexus' sales growth is expected to continue. Next July, it will introduce the IS 300, a rear-drive sedan under $30,000 that aims squarely at the BMW 3 series. Although Lexus predicts a modest 20,000 sales annually, it made the same conservative estimate for the RX 300, which now is selling at more than three times that rate.
Despite the prospect for continued growth, Lexus isn't adding dealerships. It would rather enlarge existing stores. Currently, Lexus dealers are spending more than $100 million in facilities renovations and additions, Bergsteins-son said.
Some dealers in expanding metro markets will be granted satellite locations, but that number will be limited. Instead, many dealers are using staggered shifts, or second shifts and Saturday hours to increase their business hours, Bergsteinsson said.
'We're way at the top in terms of sales-per-outlet, and there's no reason you can't take care of customers in a large store,' he said. 'It's easy to succumb and add dealers when times are good. But you have to remember that the business is cyclical.'
ALL DEALERS PROFITABLE
Bergsteinsson said every Lexus dealer posted a profit last year, and with sales up 24 percent, that should be the case again this year. Perhaps to ensure that dealers pay attention to all areas of the business, Lexus rolled out a tougher franchise renewal code this year.
Among the revisions:
Maintain sufficient market penetration.
Maintain a CSI among the top 90 percent of Lexus dealers.
Maintain a 1: 1 debt-equity ratio.
Have a net worth greater than the initial capitalization requirements.
Have a general manager dedicated to just the Lexus store.
Bergsteinsson downplayed the changes, calling them a 'restatement' and of more concern to dealers looking to expand their Lexus store holdings.
'We're not terminating dealers left and right,' he said. 'But if a dealer is underperforming and is historically at the bottom of the heap in sales efficiency, CSI and facilities, we may not give him another opportunity.'
A sampling of dealers agreed with Bergsteinsson's assertion that the changes are a 'nonissue.'
'I don't think those are outrageous requests,' said A.J. D'Amato, general manager of Tustin (Calif.) Lexus and dealer council chairman. 'Lexus wants the consumer to get the best possible treatment. To do that the dealers need to be profitable and have a general manager who is active in the dealership.'
Bergsteinsson said Lexus won't copy the Mercedes-Benz reduction of the dealer discount. Lexus' dealer discounts will remain at 16-17 percent (including 3 percent holdback); Mercedes has cut its to 7 percent.
The sticking point with the Mercedes action is that it gives the dealer less room to work with a loyal customer, Bergsteinsson said. If a customer comes in for his fifth, or 10th, Lexus, that has to be worth something.
'The concept works well for the (Mercedes) S class, which is a hot car in a hot market,' he said. 'But what happens to an old C class if the market cools?'