In 2005 Lexus was the top-selling luxury nameplate in the United States, a position it has no intention of giving up in 2006. This year, Lexus dealers get a new flagship, the LS 460; a new version of their bread-and-butter car, the ES 350; and a gasoline-electric performance sedan, the GS 450h.
Even with its stellar lineup, top ratings for quality and customer satisfaction, the brand has many challenges, says Peter Blackstock, chairman of the Lexus National Dealer Advisory Council.
Blackstock spoke with Staff Reporter Richard Truett.
Do you think Lexus' hybrid strategy that focuses more on performance than fuel economy is the right one?
Yes. You wouldn't want an underpowered car that got great gas mileage if you are a performance car driver.
I think it is the proper strategy. I don't think people buying luxury cars have fuel economy as their top-of-mind priority. But they do want to be environmentally sensitive and be perceived as environmentally sensitive.
When you are in the luxury segment and compete in various parts of that segment, such as performance and total luxury, performance is a big factor.
If hybrid vehicles perform as well or better than conventional combustion engines, people will buy those cars.
How have you done with the RX 400h?
We still have a waiting list.
Are hybrids selling well just because gasoline is expensive?
We are environmentally sensitive out here; environmental issues are big. And people are environmentally conscious.
When you move into the heartland, that desire may not be as great.
But as we move along as a society, and people become more educated on what hybrids are and ways to conserve energy, the awareness grows and so does the desire for those vehicles.
When you think about it, a few companies have really pioneered this technology. If you look at how well it has caught on, I think it will just continue to build.
The new-generation 2006 IS 250 and 350 sedans got off to a strong start, but so did the last one and then it faded badly. Why will the new model sell well consistently?
Because it truly is a competitor in that market, the real deal. I've been with Toyota for years.
Toyota moves into segments, and they are patient and they are cautious. And it may not be the first time that they get it right totally right.
This car really meets what the competition is. BMW is really the benchmark in that segment. This will be a core vehicle in our lineup, just like the 3 series is for BMW. This car will have the legs and be able to move up people to the LS and GS.
Will there be a consistent advertising campaign for the IS?
Yes. They've got the right product, and it can compete with anything out there. So, Lexus will support it.
You've never really had to worry about Infiniti. But now that brand is starting to post some respectable sales figures.
You can't worry. Infiniti has a good product. And they are a competitor in some of the same segments we are. But we can only control what we do. When you are at the front of the pack, the target's on your back. So all we can do is what we do and do it better.
Lexus service departments are among the best in the industry. Toyota's are among the worst. You have both brands. Why is there such a difference?
You really have to look at the two business models for the two franchises. Toyota is basically a volume franchise. Lexus was created working backward. What do you have to do to make a luxury franchise successful?
What does that luxury buyer want?
How much do you need to pay your service technicians, sales managers and salesmen to retain them?
That's how that business model was set up.
One of the biggest things was the service on the dealer's end. If you look at Toyota, it grew a different way. They are more and more receptive to better customer-care stores.
Lexus started out with a package put together - the finest products and a dealer philosophy.
Toyota started out and grew as a franchise and basically just increased their volume as they got into more model segments. They haven't abandoned customer care, and there is a lot of focus on dealer's getting their facilities in shape and provide their managers and personnel with the training.
What is the biggest challenge Lexus dealers face in the next 12 months?
Probably the biggest challenge is to continue what we are doing, but to do it better. As we become active in more segments of the market, we have to make sure that our business is staffed to give the customers the level of service that we have over all these years.
Does Toyota and Lexus management listen to the Lexus dealer council?
Yes. I can say that unequivocally. Years ago I was on the Toyota dealer council, too. It truly is a partnership. It's a give-and-take.
We may not always agree, but they listen and react and get back to the dealers on their issues.
The dealers recognize what they need to do. They need to have the facilities and provide the customer care and address the expectations of the customer. Lexus understands they have to build the finest product in the world and stay focused on product. And we'll focus on taking care of that customer.
It is a great model where we work together.
What are the dealer council's top concerns?
All of our organizations have grown. We need expanded training opportunities for our people. Toyota has been very responsive if we need field specialists in certain areas.
But the biggest is taking a look at the market segments and making sure we have the leasing and merchandising support programs to remain competitive.
Are Lexus dealers happy with the franchise?
Let me put it to you this way: We don't have a lot to complain about. I'm also on the NADA board. Every year the biggest thing you can look at is the dealer satisfaction survey. And that tells you what the dealers feel about the franchise, the support, the value of the franchise and the products they are given. With Lexus and Toyota, they are right up at the top of the list.
Do dealers agree with Lexus' strategy of emphasizing the product over the deal?
When you look at where we've come from in the last 15 or 16 years, I'd say it is the right strategy. When you start selling the deal, that's when everything starts to break down and you become one of the pack. If you look at the luxury market, where others have developed problems, it's where they have started selling the deal. Eventually, it pushes the value of your product down in the resale market. Those issues eventually have to be addressed. Lexus dealers have an excellent dealer advertising association throughout the country which really stays on top of this.
Do Lexus dealers make money on new-car sales?
Yes. That's what we are there for.
Last year Lexus had a "luxury summit." What was that all about?
They met with every dealer and general manager from around the country and put on a day-and-a-half seminar. They compared Lexus to other luxury brands. They wanted us to think about moving luxury customers' expectations higher - because we know the competition is out there, and they are not going to sleep. You can't just figure that that stuff will just take care of itself. You have to be constantly listening to those customers and improving your own operations.
Does Lexus have the right product mix?
Yes. As we grow as a business, Lexus will look at where seasonality is involved. And they will move to address that.
They have a lot of flexibility. If there is a shortage in the market, they will move to pick up production. If there is too much supply in an area, they will adjust that down so that it gets back to normal.
That way you don't have to push the deal and drive down the value of your product. But it's never going to be a perfect world.
Are there any vehicles that you'd really like to have, such as a true sports car? Are there any that should be dropped?
Lexus has some models that they are looking at in which the council is very interested in having. They are looking at a sports car, which we would like to see in the Lexus lineup. We are also looking at something that is a little above the LS 430, a little bigger and with more prestige.
We don't want anything to go away. There's still a market out there for the LX 470. And there will be a market. If you look at it, the volume we deal with, the vehicle has no problems.
There will be times when the whole world is focused on gas prices, and consumers will stop and think about it for a few weeks. Basically that luxury customer has a lot of flexibility, and it really comes down to the product itself and their need.
Does Lexus need a better balance between car and truck sales?
No. When Lexus got into the SUV market, it was great for our franchise. Then lately we got back into the redesign of the car and addressing the issue of having more cars.
Bottom line: It's the No. 1 franchise in the country. It's pretty tough to say they didn't do the right thing. We expect to expand in the specialty market, the SUV market and the car market.