Lexus: Still Looking For Traction In Europe

When Dirk Lindemann was looking for a new luxury sedan last summer, he considered Mercedes and BMW before settling on a $40,000, black Audi A4. Lexus, though, didn't even enter into the game. "Lexus has no personality," says the 40-year-old Berlin advertising executive.

That's a problem for Toyota Motor Corp. (TM ). The company's smooth-driving Lexus sedans sprinted from zero to luxury-market leader in the U.S. during the 1990s, overtaking German rivals Mercedes (DCX ) and BMW -- as well as Cadillac and Lincoln -- by offering better quality and service at a lower price. But Lexus is going nowhere fast in Europe: After 12 years in showrooms, last year it registered sales of just 21,156 cars -- down 11% from 2001 -- compared with more than 234,000 in the U.S.

Toyota itself is fast shedding any arriviste stigma in the Old World. Since it began producing cars on the Continent in the '90s, European sales are up nearly 60%, to 734,000. Now it wants to crack the high-end with a renewed push for Lexus. The goal is to triple sales of the six Lexus models Toyota offers there by 2010, to at least 65,000 cars. "The potential in Europe for Lexus is every bit as great as in the U.S.," says Stuart McCullough, director of Lexus Europe.

To make Lexus a success, though, Toyota needs to establish it as a separate brand. Until now, the car has been sold in Europe mainly through Toyota's 250 dealerships, along with the far less lustrous Yaris, Corolla, and Avensis models. So Toyota is trying to set up dealerships that offer luxury-car buyers the kind of white-glove service they demand. "Lexus has to establish its own heritage, not just chase BMW and Mercedes," says Tadashi Arashima, president and chief executive of Toyota Motor Marketing Europe.

Will image-conscious Europeans warm up to Lexus if the cars are sold in tony showrooms? In Spain, where exclusive Lexus dealerships have been operating since 2000, sales are up 9% so far this year, though the brand sold just 969 vehicles in the country. "We've been able to show that these cars can compete with the big German brands in quality and also offer a lot more in terms of price," says Jorge Merino, head of sales at Axel, a three-year-old Lexus dealership in Madrid.

One big selling point is Lexus' six-year warranty. And the carmaker includes three years of free checkups, maintenance, and roadside assistance. That compares with a standard guarantee of two years at most luxury brands. "I like BMW and Mercedes, but I have a feeling I may get more for my money with Lexus," says Ignacio Redondo, a legal consultant in Madrid who drives a Saab 900 but is mulling a new Lexus for the first time.

Harder, though, will be conforming to the European concept of luxury. Americans love comfort, size, and dependability, while Europeans think luxury means attention to detail and brand heritage. "The biggest selling point for Lexus is that it doesn't break down," says Philipp Rosengarten, analyst at Global Insight Inc.'s automotive group. That's not enough to succeed in Europe. Instead, Lexus needs to create a desire to own the car -- and even with plush dealerships and extended warranties, it has kilometers to go before reaching that goal.

By Gail Edmondson in Frankfurt, with Paulo Prada in Madrid and Karen Nickel Anhalt in Berlin

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