For the past eleven years, Lexus has been Numero Uno in U.S. luxury vehicle sales. Not so in China, where Germanic giants BMW, Mercedes-Benz and Audi lead the pack and Lexus is relegated to a paltry fourth.
One issue is customer service, or rather a level of customer service that fails to differentiate Lexus from its competitors. As business owner and Lexus customer Maggie Lin explains: “Nothing stands out from Lexus's service. I don't feel there's anything special compared with what Audi has been doing. They are more or less the same.”
It’s one of the reasons Lexus’s Chinese arm has sent two of its top managers to the United States to learn how things are done at the brand’s North American operation. According to J.D. Power, Lexus sold just a fifth of market leader Audi’s sales total for 2010. That’s just 49,000 vehicles to the latter’s 236,000. There’s also the issue of consumer tastes.
Takeshi Uchiyamada, Toyota’s Executive VP for Research and Product Development explains: “Consumer needs are not all the same in each market. In China, within the Lexus lineup we're introducing smaller-engine cars favored by Chinese customers.”
It’s one of the reasons Lexus is bringing the IS 250 sedan and convertible plus the CT 200h hybrid to the Chinese market instead of the big V6 engined sedans and SUV favoured by Lexus’ U.S. customers.
Another problem is Lexus’ reluctance to open a plant in China, unlike its German competitors. The Japanese sourced Lexuses (Lexi?) incur a 25% custom duty and 17% VAT, on top of the recommended retail price and the Chinese government’s engine-size based consumption tax which can be as much as 40%.
This puts them out of the range of the younger (well, younger than dead) buyers the brand so richly needs. John Zeng of J.D. Power explains:
“Toyota insists on producing Lexus in Japan, but if you want to achieve the volume of your competitors, you have to follow your competitors' strategy. BMW, Audi, Mercedes—they are all focused on localizing production of their models.”
Lexus is hesitant to open plants in China over concerns of the quality of Chinese manufacturing and the potential theft of intellectual property. The brand was also a latecomer to the Chinese market, its first dealership having opened in 2005 after twelve years of imports. Compare this to Audi, which has been the favored brand of Chinese bureaucrats since its introduction to the Chinese market in 1985.
Only time will tell if Lexus can make it as big in China as it has in the U.S., or whether it will remain one of the also-rans in the nation’s burgeoning luxury car market.
By Tristan Hankins
Source: Businessweek
