Lexus once was the volume leader among luxury brands. But with the German brands adding sales by moving downmarket, Lexus is in third place. Lexus also once was the clear leader in customer-service rankings; but with other brands imitating the same luxury touches, they are no longer a differentiating factor.
This year marks a turning point for Lexus dealers, who look to 2014 as a chance to reinvent one of the industry's strongest and most profitable brands with new products, new programs and a new showroom design.
John Iacono, chairman of the Lexus National Dealer Advisory Council, spoke with Staff Reporter Mark Rechtin about what 2014 holds in store.
Q. How was 2013 for Lexus dealers?
A. I see it in a very positive way.
We have new product coming. The RC [coupe] is coming our way. With that and the new IS, we're seeing a new, younger customer who wouldn't have considered Lexus before. They are seeing Lexus as a brand that is appealing to them. We are seeing more conquests than in previous years.
What are the major issues Lexus dealers face this year?
The aggressiveness of our competitors in terms of how they are coming to market and wanting to gain market share. Lexus never played that game, but we're starting to find ourselves in a situation where our competitors are incentivizing to a degree they haven't before. We have to stay in the game, in terms of our competition seeking to conquest our customers.
Has Lexus rebounded from the unintended acceleration recalls and the tsunami?
Our business took all that could have come our way in the past couple years, and we have put behind us a challenge we never had before -- whether it was the tsunami or the recalls that we were forced to deal with, or the currency exchange rate for vehicles imported from Japan. So we are more positive now and concentrating on new products coming in the next year.
How well have your stores bounced back from Superstorm Sandy?
All three stores have had some good success. Sandy hit this market in a very bad way, and the residual effect [on sales] was a positive one. We sold lots of cars in areas where people lost cars, whether it was a replacement Lexus or a move into Lexus.
Does it matter if Lexus is the No. 1 luxury brand by sales?
We are competitive businesspeople by nature, and we want to be No 1. But consumers don't consider volume to be the No. 1 measurement. There's more to it than that. No. 1 to them is about the vehicle they drive and the level of commitment from dealers during the ownership experience. I would love to be No. 1, but I don't think Lexus is going to chase it. We grew in a slow, methodical way.
Mercedes and BMW are dropping below the $30,000 sticker price. Should Lexus follow?
The jury is still out. I believe the Germans need to do that to comply with CAFE. Lexus doesn't need to do that. We have Toyota to take care of that customer. Lexus can focus on what true luxury is. Those customers buying below-$30,000 cars are moving from nonluxury cars because it's affordable -- but they are not true luxury cars.
We're seeing a four-cylinder turbo coming in the NX compact crossover. Is a four-cylinder turbo a proper engine for a luxury car?
The market is shifting, and the turbo four will be geared toward a younger buyer. It goes into the IS as well, and that car is for a step-up luxury buyer. If we execute it properly, like BMW did with its turbo, we want to be sure it's the right one for the brand.
Are Lexus dealers profitable?
Absolutely. Volume has gone up this year for all of us, and our margins have come up because of the new product.
Are you making money on new-car sales?
The complexion of the margins and the information right now is so easily accessible that it has challenged the new-car departments. But the volume and throughput of our franchises makes our new-car departments profitable.
Do you think Lexus still is the leader in customer service?
Existing customers have gotten very acclimated. What used to be a "wow" factor is now standard. Our goal as dealers is to reinvent ourselves so that we can take this great experience that has become the standard and go to the next level. Our competition has taken a page out of our playbook. They understand what it takes for customers to feel special. Both the manufacturer and dealer need to look at that in terms of being customer service leaders.
What are some more recent customer service initiatives?
The technology and delivery specialists showed that consumers could get the knowledge they need in a complex world. We found that knowledge is king. The newest way to go about it is the training initiatives, with a revised way of training the sales associates, assistant sales managers, whoever comes in contact with the customer. Give them the knowledge so that they know what the vehicle is capable of doing.
Are you losing sales to Tesla?
In certain markets, Tesla is hotter. The customer buying a Tesla in Manhattan adds that vehicle to their stable. They are still driving their other car. It's a statement car saying that they have this new technology. We're not seeing defections from our brand from mainstream customers. It's so cool to have this car, but they are not replacing their day-to-day vehicles.
How would you grade the dealership improvement program?
I've seen many facility actions and programs. They rolled out the new program formally at the last dealer meeting in New Orleans. They said they are very thankful about how facilities have been upgraded over the past 20 years. They are mindful about the new look of Lexus. They want platinum signs, not gold, and a facility renovation. But they are not being prescriptive. There are three versions of what they would like to see. But they are not giving us specific [sourcing] books for tile, furniture and lighting. It's more a look of what they would like, depending on local rules and culture. They're giving us a lot of flexibility.
How is Lexus' certified pre-owned program doing?
It's rolled along pretty well. We set the bar. But we have to see how we can take it to the next level. We're marketing it. We're recommitting to the program, and selling it not just for the vehicle itself but also for the CPO attributes that make it like another model within the brand. We are re-establishing our footprint. We have more vehicles surfacing off-lease and are going to have great inventory coming our way.
Are you seeing a battle brewing for off-lease customers?
It's all about budgets and resources. Conquesting costs money, and depending on how you approach business, it makes more sense to retain a customer than go after a conquest. If a manufacturer has an appetite for conquest, their budget will reflect that. It's a very expensive game to play, but some manufacturers are very much engaged in that. My brands haven't officially said that this is the year they're going to conquest. But manufacturers do look at opportunities, with leases easily monitored by PIN data, and depending on how deals went down, they know someone's monthly payment is X and who could be a good candidate to be taken away. They can pick and choose their spots. Every manufacturer is looking to take advantage.
What are Lexus dealers doing to attract more service business? Is the factory helping?
To attract more service business, you need to sell more cars. Our [number of units in operation] was affected in the past years. And that showed up as fewer vehicles in service drives. But as volume picked up, our throughput into service is up. We need to show customers that we are approachable and affordable and should not be ruled out from where you do customer-paid repairs.
All dealers are focused on taking a look at what the cost of ownership should be. The quality of our vehicles requires fewer visits to our service department. They are reliable to the point of where it's not top-of-mind to come in. Just because the vehicle is perfect doesn't mean you don't need to come into the service department. We're trying to get the message out that repairs that aren't warranty work don't need to be expensive.
What is Lexus Financial Services doing to attract F&I business?
They have all of my business. But what [Toyota Financial Services] is looking to do is to have all of everyone's business when it comes to Toyota and Lexus. They aren't trying to win business of other brands. They are good to you on retail paper, on the wholesale side of floorplan; they are good for business expansion loans. They have a great team that understands the vehicle business. It's a seamless business model between Toyota Financial Services and Toyota Motor Sales. They work in unison.
What should the factory need to do to help you sell more vehicles?
Fresh product. The resources exhausted for the events of the last few years -- the economy, the recalls, rebuilding Japan -- some of the models we would have wanted sooner are finally coming our way. People buy with their eyes first.
What do you think of the "Amazing in Motion" global marketing campaign?
It's very different from what Lexus was. They have a new boutique in Tokyo and one to come in New York City. They are elevating the brand to have the aspirational part of Lexus to be one and the same with superluxury and what people feel when they hear the word "Lexus." We were a North American brand, and now we're going global. Mark Templin knows this market. Akio [Toyoda] is dialed in with making Lexus the No. 1 brand in the world. The new marketing fits in. It's younger and more modern. With the aging of our consumers, we needed to infuse some younger buyers.
Lexus recently changed its dealer ad association marketing buy to "always-on" advertising. Why couldn't it do so before?
If an ad just says, "See your local Lexus dealer," we can get to market quicker. If we take on a more generic tagging, we can be always on, and not wait for the new tags for every individual dealership to be updated every month. Every dealer was in agreement.
How would you rate Lexus' social media?
We're attracting younger buyers with these vehicles, and they communicate more in social media than our older buyers. We get how it works. It would be naive to say we're where we need to be. New, younger buyers are transitioning in the market, along with the people who work for us in our stores. We need to train ourselves to understand it and be dialed in with how they want to talk to us and do business with us.
We need to be relevant to what is coming our way. We no longer want to deal with consuming in the same way we used to. I don't buy red wine off the shelf anymore. I find wineries I want to do business with it and deal with it online.
The way we sell cars is only slightly modified from 100 years ago. So why are we resisting the way consumers say they want to communicate with us?
Lexus is making it more difficult to be awarded the Elite of Lexus standing, at least to get the trip incentive. Although meeting the criteria for the award gets you Elite status, only 60 dealers will get the incentive trip. What do dealers think of this?
Well, if 200-odd Lexus dealers make "Elite," but 60 is what it really breaks down to, what happens to the other 140? They won't be happy. But it's to give a new standard that elevates how dealers challenge themselves with all the new metrics. Change is good. This will further set apart great Lexus dealers by having the best of the best be limited. They are being fair about how they go about it. It's not the top 60 volume dealers. The measurements are still being put together, but small and big dealers will go on these trips.