Toyota Grows a Greener Lexus

When Toyota Motor showed off its new Lexus concept car at the Tokyo Motor Show on Oct. 19, one thing was clear: It wasn't your typical hot-rod-that-never-gets-made prototype. The car -- dubbed LF-sh, for Lexus flagship sedan hybrid -- has something in common with the LS model currently in production, though it is sportier and more angular. The sedan's headlights are narrower, its roof rounder, and the wheel wells fit tightly over the tires, giving the car a more streamlined, aggressive look. It's also slightly longer, a tad wider, and sits lower to the ground.

Still, the sedan would have been right at home in a Lexus lineup -- and that was the point. Japan's No. 1 carmaker said it expects its next-generation, top-of-the-line, gasoline-electric hybrid Lexus to go into production sometime next year.

Why would luxury-car buyers want an eco-friendly vehicle? The fact that global oil prices are hovering near $60 a barrel might have something to do with it. Moreover, there are a growing number of hybrids to choose from: Besides Toyota (TM), Honda (HMC), GM (GM), and Ford (F) also sell hybrids.


  Toyota, which pioneered the technology, has trumpeted gas-electric-powered cars as the best short-term solution to fight pollution, while the industry works on ways to make zero-emissions, hydrogen-fuel-cell cars affordable. And it's betting consumers will agree.

By 2010, Toyota wants to sell as many as 1 million hybrid vehicles a year. That's about 10% of the sales it forecasts for that year and nearly seven times the 150,000 units it expects to sell this year. "Hybrids represent the future direction of Lexus," says Takeshi Yoshida, Toyota's Lexus brand-development chief.

Hybrids have had an overhaul since Toyota's Prius first hit the road in Japan in December, 1997. Back then, the vehicles -- which switch between a gas-driven engine and an electric motor to save fuel -- had a reputation for being skimpy on power. To change that perception, Toyota and other carmakers are tweaking their hybrids to deliver more zip -- but those models aren't nearly as energy-efficient as the Prius.


  Not everyone agrees with Toyota's vision of the future. DaimlerChrysler's (DCX) new chief, Dieter Zetsche, and BMW Chief Executive Helmut Panke told reporters in Tokyo on Oct. 18 that they thought higher fuel prices wouldn't discourage motorists (read, Americans) from buying gas-guzzling luxury cars and SUVs. But don't assume that Mercedes-Benz, BMW, and Audi will dismiss Toyota's plans. After all, Lexus has been the hottest-selling upscale brand in the U.S. for the past five years.

"Toyota is seeking to do for hybrids what Volvo did for safety. Fifteen years ago, nobody wanted airbags because they were too expensive. But look where we are now," says CLSA Asia-Pacific Markets analyst Christopher Richter.

It's hard to disagree. At a mobbed booth at the Tokyo Motor Show, Lexus showed off only three concept cars -- two of them hybrids. Unlike the fleets other carmakers displayed, Lexus's spartan booth cleverly delivered Toyota's message to the masses. The company rolled out its first Lexus hybrid, the RX400H SUV, in the U.S. in April. A Toyota spokeswoman said the GS450h sedan, which runs on a V6 engine, would be in showrooms by spring 2006, and that the LF-sh was likely to follow months later. More could be on the way, though Toyota won't say how many.


  Toyota officials say the GS hybrid would likely use technology that's now under the hood of the second-generation Prius. But that will require some reengineering, because each model is made with a different objective in mind. Fuel efficiency was top priority for the Prius. GS buyers will want something more muscular, which means it will probably only be a bit more fuel-efficient than its gas-engine twin.

Though Toyota says it's making money off hybrids, engineers say the vehicles still cost more to make than conventional cars. "The main components -- battery, inverter, and electric motor -- are still expensive. It's one of our biggest challenges going forward," says Takashi Okuda, executive chief of engineering product planning at Toyota.

That means a higher price tag for consumers. Some may balk at the extra $5,000 to $10,000 for a hybrid, especially if their savings at the gas pump aren't that big. Then again, you're talking about people who want a car that's roomy and full of extras. And given the choice, who wouldn't want to appear green?

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