With new-car demand slumping for most automakers, sales of Toyota's Lexus luxury brand are soaring this year.
The performance is impressive - but misleading.
By Toyota's standards, Lexus in Europe looks like a rare failure. It has so far failed to compete with its European premium-car rivals in their home markets.
The contrast with the brand's massive impact in the USA is dramatic.
Lexus sales in the USA are nearly nine times higher than in Europe, even though Lexus launched in Europe just 18 months after the USA. Toyota's top European sales executive doesn't even talk about matching the US Lexus performance.
'What we want for Lexus in Europe is a true premium brand offering the ultimate ownership experience,' says John Howett, vice president of sales and marketing at Toyota Motor Europe. 'We think from the dealer viability point, a future volume in Europe of 60,000 to 80,000 vehicles is appropriate.'
In other words, Lexus would be content with 5 percent of premium car sales in Europe, to match the 5 percent mass-market target for the Toyota brand.
Lexus has a long way to go in Europe. It sold 18,600 cars in the first nine months - an increase of 45 percent over the same period last year. But in the USA, Lexus is the best-selling luxury brand, outselling Mercedes-Benz, BMW, Lincoln and Cadillac last year. In the first nine months of this year, US Lexus sales were 162,000.
France is an example of the challenge facing Lexus in Europe. Of the 2.6 million cars sold there last year, fewer than 500 had the Lexus badge. And yet, during the same period, the French bought 77,000 Mercedes-Benz, 35,000 Audis, 32,000 BMWs and 2,000 Jaguars.
Luxury-car buyers simply don't consider Lexus. That's Howett's problem.
'Our two major challenges are to be on more shopping lists, and to increase traffic flow through dealers,' he says. 'The UK is doing extremely well, but if I look at Europe on a wider scale, those are the two big challenges.'
Lexus' fortunes improved as more models were added.
With only the LS available most of the 1990s, annual sales hovered near 4,000. They improved as the GS was added in 1998, the IS in 1999 and the RX in 2000.
But even last year, sales only reached 18,200 across Europe, almost half in the UK. Lexus remains largely unknown in the rest of the Continent.
To put that in perspective, Mercedes delivered over 700,000 cars in western Europe last year. BMW and Audi sold nearly half a million each and Volvo over a quarter of a million. Even Jaguar sold 34,000.
What went wrong?
Lexus faced several hurdles in Europe. First, it is the home of its principal German, English and Swedish rivals. Lexus competitors' distribution systems were well entrenched; their brands trusted by consumers.
And buyer profiles are different. Young US drivers grew up with Japanese autos widely available. As they got older - and wealthier - they were comfortable graduating to a new brand from their favorite automaker. Japanese car buyers in Europe tend to be older. Younger buyers aspire to BMWs or Mercedes, not an unknown Japanese brand their parents might drive.
And Toyota did itself no favors with a lackluster approach to distribution.
Instead of creating a separate franchise, as it did in the USA, the Lexus LS was deposited in the same showrooms as Toyota's economy cars. Only four years ago - with the more European IS coming soon - did Toyota begin to establish a separate Lexus dealer network.
Even some national sales companies resisted that move. They could promise prospective dealers few sales in return for such large investments. Lexus' progress in Europe stems mostly from an initiative by the distributor in the UK, where there is a big company-car culture.
Now Lexus faces another challenge. It has a gasoline-only lineup in a luxury segment that has shifted decisively to diesel. Overall, diesels account for 32 percent of new-car sales in western Europe, a rate expected to reach 40 percent in several years.
'We now need to develop powertrain coverage which enables us to compete in more of the market,' Howett says.
But diesels won't appear for three or four years.
'We are very proud of what the Lexus is as a product, and it's not just a question of taking any old diesel,' Howett says. 'We need the right diesel with the right performance.'
For the rest of the decade, the Lexus brand will be based on five models: the IS, GS, LS and RX, plus the new SC coupe. Lexus does not sell the ES or LX in Europe, although the LX is available as the Toyota Land Cruiser Amazon.
Even if Lexus reaches its decade-end goal of 60,000 to 80,000 annual sales, Howett says the dealer network, which comprises 278 outlets, won't be widely expanded. He envisions 300 to 400 dealers by 2010.