Two decades after it made its modest debut, Toyota’s Lexus division is the solid volume leader in the U.S. luxury market – even though company officials routinely insist they’re not driven to be number one. Lexus has had its setbacks, however, including an unusual, third-place finish in one recent, closely-watched quality survey. What that means, and why Lexus continues to add more hybrids to its line-up were questions posed to the division’s general manager, Mark Templin, by TheDetroitBureau.com’s Bureau Chief Paul A. Eisenstein. These are “difficult times for everyone,” Templin noted.
TheDetroitBureau: When Lexus debuted, you started out with just a handful of dealers. How big has that network grown, and will you continue adding more?
Templin: Even now we have just 152 dealers with 225 outlets. That’s been our model for a long time. We don’t add dealers to increase volume, we increase outlets to service our customers better. We don’t want to over-dealer. We want our dealers to be profitable, so they can put money back into creating an exceptional customer experience. And that model has worked. If we wanted to just add volume, there are markets where we could go out and add more stores, but is that the healthiest thing for the brand? I think not.
TDB: Why not?
Templin: People say we have great products, but that’s only half the equation. The product is only part of it. The customer experience is every bit as important. You run the risk of diluting that if you go into markets that are too small to support dealers who can put money back into customer service.
TDB: Let’s talk about product. There was a time when you proudly offered just two models. This week, alone, you’re adding two more, the IS Convertible and the HS hybrid. That’s quite a change.
Templin: Early on, we joked we were really just a one-and-a-half model company. The HS is an example of the different options we’re pursuing now. We pride ourselves on not just going with the traditional flow of product to compete with other people, but create new segments, like the RX (luxury crossover), and now the HS.
TDB: Is there room for still more product? And if so, any details?
Templin: I think the brand is strong enough, if we wanted to. Nothing we can talk about, now, but in due course?
TDB: One area where Lexus has long hoped to expand its presence is in the highline luxury market, with models like the LS. Some folks, however, don’t think you’ve really succeeded with the latest model, the LS460 and its hybrid spin-off, the LS600h.
Templin: I’m pretty proud that the brand has stretched to the point where we’re able to go from the IS250 all the way to the LS600h. As time goes by, I’d like to have more aspirational products, but you can’t do that overnight. And you have to be careful. People talk about how hard the pickup and SUV segments got hit by the recession. Guess what? The prestige luxury segment got hit harder than any other segment of the industry, many months, sales off 50, 55%.
TDB: Any indication why?
Templin: The economic climate doesn’t support that. And we’ve had some LS customers buy tell us, “Don’t worry, we’ll be back. We love your products, but right now, we don’t want people to see us driving a new (highline) car.” There’s another trend that younger people don’t buy cars by the pound, like their parents did. But (they see) smaller cars that are every bit as much a premium car.
TDB: So, do you have the room for something smaller, along the lines of the Mini or a BMW 1-Series?
Templin: You look at the market, that is a growing segment, (along with) a group of small SUVs, and though it’s not a big volume, yet – last month, the RX outsold all of them combined 3-to-1 – it is an emerging trend in the industry. We’ve been thinking about these segments for a long time. We have lots of discussions but haven’t made any decisions, yet, we’re ready to reveal.
TDB: How has the global roll-out of the Lexus brand impacted things?
Templin: Any successful global brand has to have a large portfolio of products and let the local markets choose the ones that are right for them. So, by our expansion into other markets, there may be products we hadn’t considered here but may find are right for us. This could open the door for more product proliferation and opportunities.
TDB: Everyone is talking about when a recovery might finally begin. What do you see coming?
Templin: I might be more bullish than most people, but I think we’ll see a general improvement in the market by the end of the year. Next year should be even better, and….long-term, I do believe the market will grow to the way it was before, and I think there are a lot of reasons why: The fact that we’re scrapping 2.5 million to 3 million more cars a year than we’re selling right now, and the fact that the U.S. population will grow by 100 million over the next 25 years, the fact that people are living longer and driving longer than ever, and the fact that we’re adding 4 million (first-time) drivers a year.
TDB: You’re about to launch the brand’s first dedicated gas-electric model, the HS250h. And that brings to four the total number of Lexus hybrids. What about plug-ins and pure battery cars?
Templin: I think a lot of those technologies could be viable as battery technology improves, but they’re not ready for mass market consumption. We’re still very bullish about hybrids. We still have a dream we would offer hybrids in all, or at least most of our vehicles, though I’m not making a commitment.
TDB: Almost from the moment you launched, 20 years ago, Lexus has routinely ranked at the very top of all the quality and reliability surveys. But recently, the J.D. Power Vehicle Dependability Survey bumped you down to number three, behind Buick and Jaguar. What sort of setback was that?
Templin: Well, of course, we always want to win every award. But this will help learn about a few minor issues with several of our products. And we still had two of the highest scorers, including the LS, in the entire survey.
TDB: What’s your biggest challenge, right now?
Templin: The biggest challenge for everyone in this industry, right now, is figuring out how to be profitable in these rough times. Think about it: we geared up to be profitable in a market selling in the 16 and 17 million range and now we’re dealing with an industry in the 9s. That’s a difficult situation for everybody.
Take a First Drive: 2010 Lexus IS250C and IS350C convertible. Click here.