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Should LEXUS Price its Vehicles Head-to-Head with Germans

stevekilburnstevekilburn Posts: 359
edited March 21 in Lexus
I was resisting the temptation to start this one, since there are already some lexus related discussions but I think this is a very pointed topic.

Let the discussion begin. Dont hold it back folks, release all whats in your hearts! Its good for health.
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Comments

  • 1. Lexus has been doing well from day 1. It came out of nowhere to become the best-selling brand in US for last 6 years. There products have won top prizes in refinement and quiteness, longevity and resale values, fit and finish.

    2. Last year lexus sold more than 300,000 cars, more than many mass-market brands such as Mitsubishi, Subaru, Suzuki, Isuzu, Kia, volkswagen, mazda and even Kia.

    3. Lexus Customers are ecstatic and Lexus managers are experiencing a non-stop party.

    4. Isnt it time that lexus starts pricing its vehicles head-to-head with Germans or at least be at their "tail-end" and stop the mantra "we offer less for more".

    5. Even if Lexus charges same as the germans, it will be more value for money as lexus products are longer lasting and require less repair/maintenance over the long run.
  • The Audi models cost $69,000 (SWB) and $72,000 (LWB).
    The BMW models cost $72,000 (SWB) and $76,000 (LWB)
    BENZ S550 is priced at 86,000 for LWB.

    From what I heard in NAIAS it looks like Lexus is going to be even a shade more advanced than S550. A new 8-speed transmission, self-parking, Horsepower which exceeds Audi by 50 units and BMW by 20 units and matches the mercedes.

    Its a quantum leap over LS 430 and I think they should price it accordingly.

    SWB: $67,000
    LWB: $71,000

    may not be a bad idea. These prices are still a great value for money and close to Audi A8 prices and it may not be a good idea for Lexus selling them at a cut-rate price.
  • rockyleerockylee Wyoming, MichiganPosts: 13,989
    Why not keep undercutting them and steal market share like Lexus has done and still make a healthy profit ????

    I will say this as a unbiased person between European and Japanese brand the Lexus brand is superior compared to anything the Europeans have to offer. The Lexus LS 460 arguably next to the STS-V :P could be the best luxury car on the planet made today.

    Rocky
  • Too much market share can be bad for Lexus long term health.

    Last year they exceeded 300,000 vehicles. This is only the second time in history that a luxury brand has sold that many. Cadillac sold more than 300,000 more than 10 years ago and look what happened. It almost killed Cadillac (although bad cars was another reason).

    As market share goes up, exclusivity goes down. Exclusivity goes down, ability to charge premium goes down. Bad for a luxury brand.

    Lexus should instead cap its market share to under 2%, which is roughly 340,000 units for the FUTURE.

    And, it should focus on pricing its products to match its german rivals.
  • lemkolemko Posts: 15,189
    ...something like 350K units back in 1978.

    I don't think Lexus should price its vehicles head to head with the Germans. One thing that made Lexus attractive that it was a car built better than the German makes and cost significantly less.
  • ideleidele Posts: 200
    It so happens that I am a substantial stockholder in Toyota Motor Corporation. I feel it is not in my interest for them to change their pricing practices. I agree that you get more value for the money with Lexus and I want it to stay that way.
    Toyota/Lexus is at the forefront of automotive technology and when they produce cars like the hybrids their costs are higher, but then there's a reason for higher prices.
    The really interesting battle against BMW and Mercedes will be in Japan when the new LS arrives late this year. I haven't checked out Mercedes but the BMW models in Japanese dealer showrooms are "For Japan Only" (metal labels are riveted to the chassis stating this) which are much better finished in all regards and priced with a Japan premium. We in the USA benefit from Lexus manufacturing to the Japan standard. The BMW's and Mercedes's we get are not at the Japan standard. This indicates to me that if BMW and Mercedes manufactured for the USA to the Lexus standard their prices would be substantially higher.
  • socala4socala4 Posts: 2,427
    The BMW's and Mercedes's we get are not at the Japan standard. This indicates to me that if BMW and Mercedes manufactured to the Lexus standard their prices would be substantially higher.

    A secret to Toyota's success is that its manufacturing processes are superior to its competitors. Not only do they lead to fewer defects overall, but the cost of reducing those defects is lower.

    The German makes (my Audi included) use traditional factory methods inspired by Henry Ford: build the car, then inspect it for defects. The way to improve QC in this model is to add employees who hunt down defects after the assembly process, a costly way of doing business that will lead to either (a) higher prices to cover all of those additional labor costs or (b) declining quality if you try to save money by not hiring those workers or if you ramp volumes too rapidly and you are unable to staff and train your QC teams quickly enough.

    The Toyota method uses a team assembly process that emphasizes zero defects during assembly. The reason that a Toyota worker is able and encouraged to stop the line, despite its seeming costliness, is that it is easier and cheaper to fix defects by not building them in the first place than it is to fix them by tearing down a car after it has already been built.

    The team process, married with a just-in-time inventory system, also allows for greater flexibility, because the same line can be used to build multiple cars and can be switched between products fairly quickly. This also produces savings because Toyota can more easily avoid producing excess inventories -- if there is too much surplus, that line can be stopped AND shifted to produce a different product that is in demand.

    The other benefit of the Toyota method is that quality does not suffer with an increase in production volume -- whether you build 100 cars or 100,000 cars on a Toyota line, the quality will be about the same. On a traditional German or US line, the only way to maintain that quality is to hire a lot more workers to perform QC, which adds costs and creates inflexibility in the production.

    Bottom line: Just as long as Lexus can maintain some brand exclusivity, there is no reason for it to limit production. The cars produce high margins and help improve brand perception in the entire Toyota/Lexus/Scion lineup, which can only help the company in both the short and long run. And Lexus can easily produce more cars without either harming its quality or reducing its margins, something that cannot be said of its rivals.

    During 2005, Lexus sold about 150,000 cars in the US, more than Audi (83,000) and Infiniti (95,000), but below both BMW (198,000) and Mercedes (183,000). There's still plenty room for growth and to take market share away from its rivals, so I see no reason why I'd want to hit the brakes on Lexus volumes if I was TMC management.
  • ideleidele Posts: 200
    I'm enormously pleased you chose to post. The two cars prior to my current RX400h were Audis. The quality of my 2001 A6 4.2 was rather poor. A good deal got me into a 2003 Audi Allroad 2.7T. It was better but clearly not a car to keep and tradein value was very low, When I ordered my RX400h, I checked Toyota stock. It seemed like a bargain and I bought it at just about the 2005 low. My best performing investment last year and continuing.
  • socala4socala4 Posts: 2,427
    Toyota has a great brand and is able to sell cars at a profit (no GM-style incentives and dumping), so it has great long-term prospects. Probably a good move to buy the stock if it was priced right, so good luck with that.

    IMO, its Achilles' heel is the styling of the Toyota lineup -- the cars are highly efficient and very well built, but are otherwise dull and uninspiring. Styling has long not been a strongsuit for much of the Toyota nameplate (although I will give it credit for doing far better with Scion and Lexus.) Take the Avalon, which is basically a Buick with better ergonomics and long-term reliability, a virtual appliance on wheels. Reliable ride, but might actually over the long run help serve to stigmatize the Toyota line as a source of boring cars.

    If the quality gap keeps closing, there will come a time when Toyota's quality advantage becomes less distinct, and consumers may shift to different cars in order to get the styling, features and je ne sais quoi not available from most Toyotas, because the quality differences are then no longer a factor. I would hope that they could find a way to add some spice to their designs, but the new Camry seems to indicate that sterility is part of the Toyota Way (although again, the Lexus and Scion teams seem to be more in adept at creating more interesting designs that will create buzz and interest.)
  • > My best performing investment last year and continuing.

    I keep shaking my head whenever somebody refers to their automobile as an investment. To me, any investment that depreciates at the same rate an automobile depreciates doesn't constitute a solid R.O.I., IMHO...

    Remember:

    Automobile = liability
    House = asset

    To me, buying a high-end luxury car may do wonders for one's "image" :shades: (read: ego), but at the end of the day, the money spent on an "image enhancing vehicle" can be put to better use investing for one's retirement, the children's college education (future $$$$$$), etc... :D
  • socala4socala4 Posts: 2,427
    I keep shaking my head whenever somebody refers to their automobile as an investment.

    I agree. But in this case, the poster was referring to his/her shares in Toyota Motor Corp. (traded on the NYSE), not the car.

    But satisfaction with the car did lead this poster to investigate the stock. Peter Lynch would be proud...
  • drfilldrfill Posts: 2,484
    The problem you have with Toyota is a common problem, but the Avalon is not a part of it.

    The Avalon, as the 500 and Lucerne, is not here to be "fun". It is best as a reliable family transporter, or a way for old people to drive from New York to Ft. Lauderdale, and have plenty of room for their golf clubs. Nothing more.

    Toyota's problem is they won't balance their portfolio with "fun" cars. There is no Toyota "sporty coupe", or "hot hatch", or pure "sports car". Apparently, Toyota didn't get the right ROI, particularly with the cult-hero Supra, which cost quite a bit to produce, and was the King of it's time, but was never going to be a Japanese 'Vette. At least not 10 years ago. That car was ahead of it's time.

    If they produced the Supra Turbo again, and knocked the price down to $29,995, as they did in it's final year (1997), it would tear apart 350Z and Mustang GT's, just like it did back in the day. AND IT WOULD SELL 25-30k a year!

    Maybe that's not enough for Toyota.

    How about Scion Supra?

    DrFill
  • ideleidele Posts: 200
    I apologize. Imeant my investment in the stock TM.
  • drfilldrfill Posts: 2,484
    I have no problem with the LS going up $10k with the new 460! No problem at all! That would make it $66k? LWB $72k?

    Have to agree with the sin-sai of this forum about Lexus. 300k is a great achievement. I also think that it means it's time to start adjusting supply and demand vs. price and prestige. If everybody has a RX, it becomes less desireable, and hurts resale and "perceived value".

    Problem is, outside of the LS, just about all of their cars and SUVs are the right price!

    The LX is a little high! The SC hit the right price, unlike XLR, which overshot and died a quiet, lonely death. The ES and IS can't move very much. The GS wouldn't sell at all if priced in the 5/E-Class range.

    I think Lexus knows how to read our market, probably better than we do.

    DrFill
  • socala4socala4 Posts: 2,427
    Toyota's problem is they won't balance their portfolio with "fun" cars. There is no Toyota "sporty coupe", or "hot hatch", or pure "sports car". Apparently, Toyota didn't get the right ROI, particularly with the cult-hero Supra, which cost quite a bit to produce, and was the King of it's time, but was never going to be a Japanese 'Vette. At least not 10 years ago. That car was ahead of it's time.

    I absolutely agree, and that's what I had been intending to say. I don't expect the Avalon to be an exciting driver's car, but Toyota needs something in its lineup that is more charming than a Frigidaire, if but to show off its technical prowess and capacity for fun factor.

    I would bring back some sort of sports car (Z fighter) and/or pony car competitor of sorts (the Supra and 3000GT were the closest thing to a direct competitor of the Camaro from a Japanese maker), not necessarily to generate profits but to bring excitement and attention to the lineup. Toyota seems to channel all of its cars with any character or quirk to the Scion or Lexus nameplates, leaving the main brand with a series of very well built blenders and dishwashers.
  • drfilldrfill Posts: 2,484
    Unfortunately, it coincides with the death of any spirit or zest their lineup once had.

    They may see that as an omen. Since drivers are a small, but vocal minority, big-time Toyota can turn a deaf ear to us.

    That's why I personally roll with Honda. They actually care about people who excel at driving, not just commuters.

    DrFill
  • fintailfintail Posts: 33,804
    Lexus could price some of its vehicles higher and get away with it.

    Maybe now that the new style LS doesn't look like a 10-15 year old S-class, it will be more exciting in other ways too.
  • ghuletghulet Posts: 2,628
    The new IS is, pricewise, now neck-and-neck with its German (3-series and C-class) competitors. It's probably a superior product in some ways, but I think the price in this case may hurt sales somewhat. The IS name doesn't hold the same cachet with the yuppies that a 3-series does, IMO. At least not yet.
  • au94au94 Posts: 171
    I could go both ways on this issue.

    1) Undercuting the MB, Audi's and BMW's is what got Lexus to where they are today, so common sense would say continue as is.

    2) On the other hand, I have a real problem when I compare a ES330 with a loaded Camry XLE V-6. So the Lexus may be a little quieter or smoother, I believe the marketing word is 'refined'. Is a little refinement worth 5-8k? Don't think so.

    Re: The lack of 'sport' in the Lexus line up. The IS is their attempt at it and I believe they are saying take it or leave it. I'm sure they have done the market analysis and have determined that the number of customers who truly 'drive' their 3 series as intended is negligible and therefore not worth their R&D dollars to capture a small market.
  • mirthmirth Posts: 1,212
    I don't know about anyone else, but (with the exception of the old SC) I find their styling to be very boring, and that includes the latest production and concept models. I'm sure they are excellent cars, but if I was spending the money I'd get something different.
  • ghuletghulet Posts: 2,628
    I don't think people buy Lexus for 'sportiness' (case in point, the last generation IS). The current is certainly a better 'sports sedan' than the last (though it's porkier, not as lean looking, and still has no back seat), or perhaps than the current 3-series even, but again, the majority of people who buy 3-series sedans are doing so to prove they've 'arrived', not to tackle the twisties. Truth, most spend the day tied up in traffic jams on freeways or running to the market like any other car.
  • Volumes and Exclusivity are not very good friends. Lexus outsells many mass market brands. I dont think lexus should expand so quickly.
    If they maintain 2% or a little lower market share (less than 340,000) in 2005 terms, than they might do better. Their best selling model is the RX330, which in my opinion is slightly under priced.

    They should increase it to somewhere slightly north of 40K and compete head-to head with Mercedes ML Class. The volumes will probably fall slightly but the higher price will compensate in terms of revenue and profits.
  • An underdog luxury brand established itself against the champion by offering more for less. But after it has established itself, the reputation, the customer base and visibility, it should not stick to the old worn out philosophy. Otherwise it will be bad for the underdog.

    Stage A: Offer more for Less
    Stage B: Offer more for Same
    Stage C: Offer more for more
    Stage D: Offer same for more
    Stage E: Offer Less for More

    Lexus has been at Stage A for last 17 years. Now they should move to stage B, which means offer more for same price as the germans.

    Stage B is still a lot of value for the money because you are still offering more than the competitor (aka germans), but at the same price instead of cut-rate.

    Mercedes-Benx which has long tradition is at Stage D. Lexus at Stage B can effectively compete with Mercedes S550 by offering Audi A8 pricing.

    This still means a lot of value for the money.
  • I do not understand why BMW and Mercedes prices would be even higher. Is cost of labour in germany that much higher than Japan? Or does quality control take much more time in Germany? Or is it just a big mess in Germany which takes a lot of manhours and consequently more money to resolve?
  • I think your post is one of the most important in this discussion. Right on the money.

    Now start adjusting supply versus demand. 302,000 is great achievement, but now put a leash on supply. Everyone has a RX330 and it just isnt good to have it in such ubiquity.

    I agree IS and LX and SC are priced in line with germans,

    but LS is way way underpriced and

    GS and RX330 need a good boost.

    The thing with GS is that they need a strong V8. 300 hp just isnt enough when you are competing with 360 HP 5-series.

    I hope GS450h solves some of that problem.
  • Yes LS has finally come out the shadows in terms of styling, at least by lexus standards. The integrated tailpipes is a good direction.

    Now they must move up in pricing. That would increase the cachet.

    Benz and BMW both sell 20,000 per year or less of their flagships.

    Lexus should aim in the ballpark of 25 thousand and charge top dollar.
  • thats right, but they will build the cachet gradually. I think they should keep the pricing nexk-to-neck and offer more content, more power.
  • drfilldrfill Posts: 2,484
    The IS design is boring?

    I guess you like the seriously flawed, but not boring, 7 and S-Class designs?

    And to whom it may concern, the ES has more than a sweeter interior, it's exterior is a nice upgrade over Camry, options that are unavailable on Camry, Lexus sales and service is a plus, and exclusivity, as there are 6 Camrys on the road for every ES.

    DrFill
  • drfilldrfill Posts: 2,484
    Help for the Gs is one the way, as in the fall, look for the Is' 306HP 3.5 in the GS350, and anywhere from 370-400HP in the GS 460.

    The V8 GS is not very relevant, as 80%+ Lexus GS are V6. A 300+HP engine will help.

    The thing is, the RX IS the 3-series of SUVs! they can charge whatever, and it will sell. The MDX is nice, but not a threat. And the ML had it's chance, but dropped the ball. So what else would you buy if the best SUV raised it's price $3-4k in a redesign?

    The LS LWB SHOULD start at just under $70k, if it were me. That's a nice price hike, but is still a good value.

    DrFill
  • socala4socala4 Posts: 2,427
    Lexus has been at Stage A for last 17 years. Now they should move to stage B, which means offer more for same price as the germans.

    Why? Lexus is working to take market share from its competitors, so it strives to be price competitive.

    I'd view it as a war of attrition. Lexus can ramp up production volumes without harming quality, while its rivals will have greater struggles with trying to build more while maintaining quality levels. (This is due to the differences in manufacturing practices that I summarized above.)

    So really, Lexus' best hope is to heat up the game further, pushing the German makers to either (a) make serious quality mistakes as they expand production, thus pushing more buyers to Lexus in the future or (b) raise prices to such a ridiculous degree (to pay for all that needed QC) that they are utterly uncompetitive in comparison.

    In fact, we already see evidence of (a) already happening (imagine that MB announced that it was considering dropping from the JD Power survey -- obviously, they didn't like the results!) Reducing market share by raising prices from current levels won't accomplish Lexus' long-term goals of growing market share.
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