Lexus chair: Still missing a big, luxury ‘people mover'

Profitability remains a key concern for Lexus dealers in the United States, many of whom are leaning more heavily on Lexus Certified Pre-Owned vehicles as well as their fixed ops departments to maintain or boost their bottom lines, says Paul LaRochelle, the chairman of the Lexus National Dealer Advisory Council.

LaRochelle, a partner at Sheehy Lexus of Annapolis, in Maryland, says Lexus dealers still miss having an "Escalade fighter" in the lineup, but that the brand is taking steps to fill that and other needs. His Lexus dealership sold about 1,100 new vehicles and 1,200 used vehicles in 2019.

LaRochelle, 48, spoke with Staff Reporter Larry P. Vellequette. Here are edited excerpts.

Q: Sales were largely flat for Lexus nationally in 2019. What was the year like for Lexus dealers?

A: I think what we were able to do is, as we've done in the past and as we did in the recession, we were able to really all balance our operations. A lot of us are getting more actively involved in the Lexus Certified business. We have a tremendous program. So between used sales and new sales at almost all dealers being a 1-to-1 ratio, it's balanced out.

We've continued on as most, so even being in a flat year, I would just say that the [units in operation] count is still healthy. Therefore, the service and fixed ops business has been a primary driver in the overall growth of the dealership and the profitability of the dealership.

I think the key point is just the way we've all balanced our operations to make sure that every department is getting its fair share, whether it's the sales up front, new or used, the finance end of it or the fixed ops end of it.

Right now, what's the bigger concern for Lexus dealers: profitability or affordability? And why?

Profitability. We actually have a committee on that which I'm a part of. But I think that the easiest way that we fix that, which I have said to some other individuals, is that profitability comes from having exciting, desirable product. That's not new. That is the silver bullet, and that is what makes us the best brand, from way back when we launched this company 30-plus years ago — having great product in a luxury market that brings consumers in, because it is value-priced, but with exceptional quality and desirable vehicles.

We changed our brand, totally, when you think back to the 1999-model-year RX. For us, that changed us because we had a vehicle that no one else really had: a luxury SUV that fit the needs of a wide variety of clients and consumers and that is, still to this day, our No. 1 seller. But as we look into the world we're now selling into, which is certainly an SUV-driven world and buyer, we've got a great product lineup. Now it's just a matter of changing, redesigning, coming out with different variants of those luxury utility vehicles and SUVs that we currently sell, and perhaps even a few new ones along the way.

Do special editions, such as the Black Line vehicles, sell well for Lexus?

Yes, they always have. I can think back to when we did the first Coach edition cars. They've always done well. So we always welcome the special editions. I think now we will obviously see the Black Line editions and some other special editions coming out in various models. They're well received; generally, they do well. It's just subtle amount of change, but enough to where it does drive current and new buyers to our showrooms.

Let's talk about Lexus Financial Services. What is the day-to-day advantage that Lexus Financial Services brings to Lexus dealerships? How does that play out in your store?

Lexus Financial Services has always been a tremendous partner for all of us, and the ability that we have, because of the buying power we have with them in ensuring that our clients are getting outstanding programs — whether it is predominantly to lease or to finance their cars conventionally. They will give us programs that someone else is not necessarily going to get in the open market.

They compete with credit unions and any bank when it comes to rates, but over the years, we've seen some outsiders try to come in and pilfer the leasing end of our business, and they can't sustain it. Because what Lexus Financial Services does, even in the tough times and the recessionary times — I can remember distinctly when gas hit $4 a gallon, and a lot of people found themselves in a not very favorable equity position in some of these big V-8s. Lexus Financial had to take it on the chin, and they did, but they were our partner in that, and you know, they stood the test with us.

They also are great in servicing the clients, and making sure that we are ahead of clients maturing in their leases, and there are great communications with them as well as us. It's a great partnership and always has been, and I'm really happy with the leadership that is now there with [Toyota Financial Services CEO] Mark Templin and the rest of his team.

Both Lexus and Toyota are all-in and committed to their sedan lineups. Are sedans and coupes a harder sell now because there are fewer customers looking for them? Or are they an easier sell because so many of your competitors have left the segment?

I don't think it's the latter. I just think we've always built sedans that are high quality that offer the clients what it is they want, whether it's technology or any of the features in the vehicles.

Again, going back to the launch of Lexus 30 years ago, giving clients in the LS a high-value luxury car. Those who have had them, the only ones who generally leave us aren't leaving the brand, but going to one of our own luxury SUVs.

I always remember back in the day, when I used to sell these cars many moons ago, I used to tell clients that if they were looking at an LX, an LX is an LS with all-wheel drive. And what I meant by that was you're not losing all the luxury feel and fit and finish, because in most cases, you sacrifice that getting an SUV. In our case, the LX just lifts you up, literally, and gives you all-wheel drive. You're not losing the luxury drive and quietness of a Lexus that you're used to.

What do you think is missing from the Lexus lineup? Do Lexus dealers miss not having a full battery-electric vehicle to offer to customers?

No, I think we have taken the appropriate wait-and-see approach when it comes to an all-electric vehicle. When we talk about electrification, we consider that hybrid technology, which is something we came to market with first with the RX hybrid. The RX hybrid continues to dominate the luxury hybrid market.

The big miss for us right now is a two-part answer: No. 1, which is thankfully what (Toyota President) Akio Toyoda committed to us, is to continually look at the length and the cadence of our vehicles, on how long we go between redesigns — and I mean not just headlight changes, but a good, healthy redesign. And then there are some things that are in the pipeline, in what I would call the 2025 plan, where he committed to us that over the next five years, Lexus is going to get at least two to three redesigns, or even potentially a few new vehicles added to the lineup each year over these next five years.

One of our biggest misses, and it's great to say it's coming, is the new LC 500 convertible. That's very helpful, to be back in the convertible conversation, although at a very low volume. It's great that we have that, but some of the other things that we are working on that are going to be coming soon are some larger SUVs — I'll call them people movers. It seems like Lexus has a desire, and dealers have a desire, to have a seven-passenger [Cadillac] Escalade fighter, or a Denali fighter or a Lincoln Navigator fighter. Truly having the prestigious seven-passenger, people-moving, kids' soccer-family-moving vehicle. The LX is great; that vehicle will be getting an enhancement soon.

But the biggest want right now, unanimously through Lexus dealers, is to have something in that larger luxury-vehicle segment. That larger vehicle is really a big miss for us in an LUV/SUV world, where gas prices are pretty stable and with the job the nation has done to become energy independent.

Toyota and Lexus dealers have consistently had the best relationship with their manufacturer of any brands. When you talk to your fellow dealers with other brands, or even your own experience, what makes the Toyota/Lexus experience so different? What is the special sauce?

It's because I have a direct line of communication with the brand leadership, and not just because of my role as chairman. Even before, and I'm talking back 12 to 15 years — whether it was the area general manager, or whether it's the field reps, when we go to fireside chats, or on area councils or national council meetings — this is the only brand that truly doesn't just sit in the room and get a bunch of head-nodding, that truly listens to the dealers, listens to us.

These meetings are invaluable. I remember going to my first fireside chat 20 years ago, and I thought how, in a sense, it was just odd because it just wasn't normal, from my experience. I remember thinking, "Don't you just send us the product and tell us to sell it or whatever, pressure us to sell it?" I mean, they were listening, and there was no topic that couldn't be covered.

So the answer is, it is truly a partnership, where we both realized that they've got to listen to the feedback that we're getting from the consumers, to get us product, to be able to sell product, to finance and lease that product, with programs that are exceptional.