Toyota is moving closer to its goal of setting up a standalone Lexus franchise in Europe.
By the end of next year, Toyota expects to have 55 Lexus dealers in the UK with new showrooms and dedicated staff.
The UK will be the first European country with Lexus outlets in full operation. It is the biggest market in Europe for Toyota's luxury-car brand.
The average dealership will cost £1.45 million (euro 2.2 million, $2.3 million), including new buildings and land, said Stuart McCullough, general manager of Lexus GB.
The new franchise will aim for 'exceptionally high levels of customer service,' said Jan Kidacki, dealer representation manager at Lexus GB.
Toyota also wants to ensure that the dealers are profitable. Their territories will be large enough to guarantee annual sales of about 200 units within the next 18 months, Kidacki said.
In return, dealers are being asked to spend heavily on luxurious new showrooms based on a common Lexus design. Specific materials must be used for both the interior and exterior.
In the UK, Toyota forecasts Lexus sales to increase from 3,287 last year to 12,000 in 2001.
Toyota is making some changes for the new franchise:
Dealer profit margins have been revised. There will be a standard 7.5 percent margin and 1 percent reimbursement for marketing costs. Another 6 percent will be tied to performance factors other than volume targets, including developing the business.
Dealer allocations will be more closely reviewed than with Toyota's current supply system in Europe.
Although manufacturers in the UK tend to sell directly to rental companies like Avis and Hertz, the Lexus franchise will stay out of the rental business. However, Lexus dealers will be able to sell to corporate fleets.
A financing package will allow dealers to borrow up to 80 percent of the required showroom investment, rather than the usual 50-60 percent.
The template for Lexus in the UK is the brand's US network, which was started in 1989. In Europe, Lexus models have been sold through Toyota dealers. But in December 1997, Toyota gave notice of termination to all its 67 UK dealers selling Lexus cars. Only half are expected to become new Lexus dealers.
Lexus is moving slowly in awarding franchises because 'we believe it is better to have no dealer than a bad dealer,' said Kidacki.
But the UK is further ahead than other European markets in setting up Lexus franchises. Up to 30 percent of its new dealerships should be completed by the end of the year.
By contrast, Germany has not appointed a single dealer. Lexus executives at Toyota's European headquarters in Brussels want Germany to become the largest market for Lexus cars. They plan to operate between 70-80 dealerships there.
Lexus sales have grown more quickly in the UK than in continental Europe. McCullough said UK sales have represented up to 60 percent of Lexus' total European volume.
Javier Contijoch, Lexus brand director in Europe, attributes the brand's appeal to the close connection between the UK and the USA. 'Lexus has a good reputation here (in the UK) because of those links,' he said.
The first Lexus showroom in Europe will open in Bristol, west England, in September. It will be owned by Arriva plc, the third-largest car retailer in the UK. It has 36 dealerships.
Lexus GB does not believe focusing on customer satisfaction will require a complete culture change. The brand already has a 65-70 percent customer loyalty rate, managers said.
Dealers are convinced they can ensure quality by hiring new workers who are accustomed to providing good service. Nigel Kingscott, general manager of Arriva, is interviewing sales people for Lexus' Bristol store from the retail and hotel sectors.
'The motor industry is profit-oriented, but not always service-oriented,' said Kingscott. 'We need people who are very much oriented to a cradle-to-grave customer satisfaction.'
Eddie Hawthorne, managing director of Arnold Clark Automobiles Ltd. in Glasgow, Scotland, said he has been receiving employment applications from Mercedes-Benz, Audi and BMW technicians.
His Lexus store is due to open in the first quarter of 2000.
Dealers are being promised an eventual range of five Lexus vehicles, which sources say will include the RX300 sport-utility and a coupe, plus more engine options.
Hawthore said he is confident that the franchise will succeed because of its strong product lineup. He said interest has been high in the IS200, the new small Lexus designed for Europe. The IS200, which competes with the BMW 3 series and Mercedes-Benz C-class, gives Lexus dealers the increased volume and confidence to expand, he said.