Lentz on Lexus: Few regrets

PLANO, Texas -- Hindsight and low gasoline prices have Lexus wishing it had invested in a large three-row crossover first rather than in its sexy coupes, according to Jim Lentz, Toyota Motor Corp.'s North American CEO.

In an interview with Automotive News at Toyota's temporary headquarters here, Lentz acknowledged that it would have been wiser to resist dealers' calls for an image vehicle like the sporty RC coupe and instead build a rival to the Mercedes GL and Audi Q7.

Such a vehicle would do more to help Lexus hang on to the crucial Gen Y crowd as they begin to have families and shop for a bigger hauler that handles like a car. Lexus' current three-row offerings are the truck-based GX and LX SUVs, while its top-selling RX crossover seats five.

"In hindsight, if I was making this decision 10 years ago, seeing what I see today, the three-row [crossover] probably would have been the better play to come out first," said Lentz, who has stationed himself at an office in Texas as Toyota prepares to move its headquarters to a new corporate campus here from Southern California.

He added: "Strategically that's a more important vehicle to have than necessarily a lower volume, higher priced image product."

Lexus wouldn't confirm last week whether such a vehicle is under study, but dealers have been clamoring for it. "Third-row seating is the No. 1 issue we hear from dealers," Lexus division chief Jeff Bracken told Automotive News last year. "We feel like we're missing a 35,000-units-a-year opportunity. We're working hard to rectify that."

Still, Lentz doesn't see the RC as a mistake. The coupe, based on a mashup of the IS and GS sedans and the dated IS C convertible, has sold 4,258 units through the first four months of the year, outselling Lexus' flagship LS sedan.

Lentz is happy with those numbers, and he's also pleased that the F Sport trim line and high-performance F version of the RC satisfied dealers' calls for something with a little panache without overloading the Lexus lineup with too many low-volume models.

Besides, there has been little cause for regret in Lexus' performance this year. U.S. sales through April are up nearly 17 percent from a year earlier. Lexus now trails first-place Mercedes by about 4,300 vehicles and second-place BMW by about 2,400 vehicles. Lexus' newest crossover, the compact NX, shot out of the gate when it was launched last summer and sold 12,532 units in 2015 through April.

Those luxury sales helped fuel the rich North American profits that buoyed Toyota Motor Corp.'s results for the latest fiscal quarter and year. Toyota announced Friday in Japan that North American profits for the fourth quarter ended March 31 were up 72 percent to $735.6 million.

For the fiscal year, Toyota's global operating profit grew 20 percent to a record $22.99 billion, the company said, with North America accounting for more than half the increase. Net income rose 19 percent to a record $18.17 billion, on a 6 percent rise in revenue, to a record $227.66 billion.

With Lexus nipping at the Germans' heels for the luxury sales lead, one might think Lentz would be laser-focused on making a play for No. 1. He's not.

"In the luxury business, chasing volume is not a good strategy," Lentz said, making it clear that Lexus has no plans to follow the Mercedes-Benz CLA and Audi A3 below the $30,000 mark. "Luxury cars cost a certain dollar amount for a reason. I don't want to cheapen my cars just to offer a lease that's $20 a month less."

He's happy with the younger buyers the IS sedan is pulling into the Lexus fold and the conquests the entry-level CT hybrid is reaching.

Lexus will approach adding higher priced models to its lineup carefully, Lentz said. "I think at some point it's not sustainable if you end up with just too many body types in your lineup."

He's determined to use just a handful of high-volume models -- near- and entry-level luxury sedans and near- and entry-level cross-overs -- to cater to about 70 percent of Lexus shoppers.

"You've got be careful that you satisfy those segments first and then understand strategically which other segments are important to you based on the image of the brand."

As for what other new models dealers are asking for in addition to a large three-row crossover, Lentz doesn't miss a beat: "They want everything."