A Foggy Future: Where Can Lexus Go From Here?

It might be time to start calling the J.D. Power Initial Quality Study "The Lexus Report." For the fifth straight year, Lexus was the top-ranked nameplate. The study found that Lexus buyers reported 81 problems per 100 vehicles during the first 90 days of ownership. The industry average was 118.

Lexus seems unstoppable. The company has launched a new GS 300/430 sport sedan and a new version of its entry-level IS sedan will come to market in October. The RX 400h hybrid joined the gasoline-powered RX 330 and promises to continue Lexus' run as the best-selling luxury brand in the U.S.

With 27 percent of the market, Lexus sells more sport-utilities than any of its competitors. Last year it sold almost 152,000 copies of the GX 470, LX 470 and RX 330, beating BMW's X5 and X3 by more than 2 to 1. Lexus actually sells more sport-utes than it does cars.

But take away SUVs and Lexus sales weaken considerably. For all of last year and the first four months of this year, Lexus ranked fourth in luxury car sales behind BMW, Mercedes-Benz and Cadillac. It's followed by hard-charging Infiniti, Lincoln, resurgent Audi and Jaguar.

While Lexus was cornering the luxury sport-utility market, the luxury sedan segment shifted. Manufacturers spiffed up their designs, powered up their engines and left Lexus at the starting line.

Lexus is not in denial about this. The company realizes that the luxury car market has morphed into the luxury performance-car market. Yet until this spring's launch of the new GS, Lexus had not introduced a sexy new car since the SC 430 in March 2001.

The IS 300, launched in January 2000, gave Lexus four passenger-car nameplates: the LS, the ES, the SC and the IS. In the meantime, however, the array of new cars spewing out of Audi, BMW, Infiniti, Mercedes-Benz and even Cadillac, has been dizzying. Where to begin? Mercedes-Benz, for instance, doubled its number of passenger-car nameplates, and this year's all-new CLS boosts the car count to eight.

To sum it up, sedans from Lexus' competitors, even struggling Jaguar, are strongest where Lexus cars are weakest: in design and performance.

BMW is rolling out a new look that continues with the launch of the 2006 3 Series. The staid studs from Stuttgart have introduced a 3.5-liter V6 that puts out 268 horsepower. It is the new base engine for Mercedes-Benz stateside. For the new A4, Audi will have a high-performance S4 and an even higher-performance RS4. And Cadillac, with its CTS-V, STS-V and XLR-V, intends to play power pistons, too.

Lexus' Bill Ussery acknowledged that Lexus cars have long been criticized for a lack of styling and performance. Implicit in what he said is that Lexus concedes there is credence in the complaints. What has carried the brand's cars this far is a build quality and customer service reputation that are the gold standards of the industry.

But in response to critics and to capture more car sales, Lexus has developed a new look and will pump up its engine power to form the core for each new passenger-car model in the pipeline. The new Lexus GS indicates the design direction. And Ussery says the LF-A and the LF-S concept cars give even more shape to Lexus designs and the innovative technological power of future vehicles.

But it is the all-new IS that Lexus is hanging its hat on. In October, the company launches the IS 250 and the IS 350 in both rear-drive and all-wheel-drive versions. A coupe and convertible are being considered. Lexus intends to make the IS 350, which will have more than 300 hp, the halo car for the entire brand.

Lexus is hanging a good deal of its brand capital on two cars, the IS and the GS, that were never well received in the market. It has to refamiliarize consumers with these cars and at the same time establish them and itself in the luxury-performance market where it has not been a player.

Worse is that the IS is launching into a big buzz saw in the form of an all-new version of BMW's revered 3 Series. The 2006 325i and 330i launched this spring. This fall we'll see all-wheel-drive versions of both cars: the 325xi and the 330xi along with the 325xi sport wagon.

Lexus has the right idea, but does it have the know-how to get the job done? The latest commercials for the GS have the car on an open road with the sound of a high-revving engine changing gears in the background. They are great commercials but they remind me of Infiniti. I just hope that the ads for the new IS don't remind consumers of BMW. Both brands have their own ad budgets.

Lexus' new cars are a step in the right direction. But the advertising and marketing message needs to be fine-tuned, tightly focused and delivered with rifle-shot accuracy to leave a memorable new brand identity and image of Lexus. I don't think they are there — yet.
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