Lexus In Europe, Not as Easy as Lexus in U.S.

FRANKFURT, May 20, 2005; Christiaan Hetzner writinfg for Reuters reported that Frank Winter probably has one of the most thankless jobs in the German car industry.

Faced with the fiercest of competition, the head of Lexus Germany is not kidding himself that Toyota Motor Corp.'s (7203.T: Quote, Profile, Research) premium brand is poised to enjoy the same phenomenal success here that it has had in the United States.

Lexus came out of nowhere to become the U.S.'s best-selling luxury marque for the past five years straight.

Just as Lexus is pushing to establish itself as a global powerhouse in the luxury segment, domestic goliaths BMW , Mercedes-Benz, Audi (VOWG.DE: Quote, Profile, Research) and Porsche continue to crowd it out of the largest car market in Europe and potentially the most demanding in the world.

Last year Lexus eked out a marginal existence in Germany, selling just 2,600 vehicles. It expects over 3,000 this year -- hardly something that would leave home-grown rivals quaking in their boots.

"We're aiming towards 10,000 car sales in Germany by 2010 out of a premium brand market totalling some 1 million. That translates to a share of 1 percent so one can forget about descriptions such as 'attack' and 'conquer'," Winter said in an interview with Reuters.

Whereas roughly half of the 2 million mass-market cars sold in Germany are imports, "when you look at the premium market, over 93 percent are domestic brands," Winter said.

An upstart marque first launched by parent Toyota in the United States back in 1989, Lexus quickly pulled the rug out from under the venerable German luxury carmakers.

But it hasn't been able to gain any material success in Europe, home to the world's elite luxury brands including Jaguar, Ferrari and James Bond's very own Aston Martin.

Lexus sales in Europe fell 8.5 percent to 8,168 units in the first four months of 2005, although it says this was expected due to upcoming model changeovers. Despite the decline, the brand aims to sell around 29,000 to 30,000 units across Europe this year, up from a record 24,913 in 2004.

By comparison, BMW last year delivered over 39,000 1-Series hatchbacks alone in Europe in less than four months.

Industry analysts point to the short list of model lines and body styles as well as a limited number of engines to choose from and the total lack of a diesel-powered car in its range.

Whereas Lexus only offers two different petrol motors for its executive GS saloon and no estate version, Mercedes E-Class buyers can choose between 11 different engines for the saloon including diesel, petrol and natural gas, and nine in the estate.

Moreover, European customers do not have the added choice of the Lexus ES saloon and the larger LX and GX sports utility vehicles (SUV) that are offered in the United States.

NEW DESIGN, NEW DIESEL

Winter and his boss, European Vice President Karl Schlicht, are banking on imminent product launches to finally ignite the sputtering growth motor.

Late last month, the redesigned GS went on sale in Germany, going head to head in the high-margin executive car segment with the E-Class, Audi A6 and the BMW 5-Series.

The new GS will give a key indication as to whether Lexus has got it right, since it is the first model to incorporate the brand's new design style.

"For the first time, we've got styling that much better mirrors European design," Schlicht told Reuters.

Initial signs have been very encouraging as April car sales rose 9.4 percent thanks mainly to strong demand for the GS in Germany and the UK.

Lexus said GS sales are forecast about 25 percent ahead of plan by the end of the year and the brand expects to sell about as many GS models in May alone as it did in the whole of 2004.

Moreover, the RX400h hybrid SUV will hit dealer showrooms later in June, while its best-selling model, the mid-sized IS, will be relaunched at the end of the year.

The first ever diesel-powered Lexus -- an IS with a 2.2 litre, four-cylinder diesel engine -- will follow in early 2006.

In a continent known for packed cities and congested traffic, the Lexus Europe VP is bullish about the outlook for hybrid models, a fuel-efficient technology that adds an electric motor that recycles energy spent in braking.

But Schlicht is aware that diesels comprise an ever growing share of new car sales in Europe and typically are a major favourite for fleet and corporate car buyers such as taxi firms that run almost entirely on diesel.

"By 2010 we want to sell 65,000 cars and a big part of our volumes we will get from the new diesel IS," Schlicht said.

"Diesel opens all these avenues that used to be closed to us, such as the opportunity to go after the fleet market," he added.

Along with plans to expand the number of dealerships by 100 to 350 by the end of the decade and a goal to raise the annual output per dealer to its UK level of 200, Lexus might finally be emerging from behind the shadows of its German competition.

"Up to now it's been a great business and its just going to get better," Schlicht said.