High Tech Lexus

The priciest and most technologically advanced Lexus ever, the new LS600hL offers what BMW and Mercedes can't: a luxury hybrid

If the latest in auto gizmos is your thing—and you've got more $100,000 to spend on a car—perhaps it's time to test-drive the new Lexus LS600hL. The latest and most expensive addition to the Lexus line, the flagship LS600hL has been on sale in Japan since May and will begin reaching U.S. dealers in late summer. "Everything about that car is leading-edge technology—it's got to be one of the most technologically advanced machines," says Jim Press, Toyota Motor's (TM) North American chief.

While luxury competitors might question that point—analysts, for instance, reckon Europeans rivals have a technological edge when it comes to braking systems and diesel engines—no one can argue that this new Lexus, which includes dozens of computers, isn't jam-packed with the latest gadgetry.

Under the hood, there's a new 5-liter V8 engine that, thanks to a hybrid system, performs more like a V12, racing from 0 mph to 60 mph in 5.5 seconds, generating 438 horsepower. With fuel economy of 20 miles per gallon in the city and 22 mpg on the highway, it's hardly in Prius territory. But the LS600hL, and the slightly smaller LS600h (which won't be sold in the U.S.), is 70% cleaner than rival cars from the likes of Audi, Mercedes-Benz, and BMW. It's also 25% cleaner than the nonhybrid version of the Lexus LS460.

Trying to Stand Out

What's more, at $126,000 for a fully loaded model in Japan (prices will start at $104,000 in the U.S.), buyers are unlikely to be too ruffled by the hybrid premium—the additional cost necessary to produce the hybrid system that investment bank UBS (UBS) estimates is likely to be more than $7,000 for larger vehicles.

More important, the high-end luxury hybrid brings the Lexus brand some much-needed differentiation in a crowded market. "Lexus needs something that Mercedes-Benz and BMW don't have, and the hybrid system is one of the weapons." says Koichi Sugimoto, an analyst at Merrill Lynch (MER) in Tokyo.

That differentiation is much needed: It might surprise Lexus owners in the U.S., where the Japanese marque is the best-selling luxury line, but in Japan and Europe, Lexus fever has yet to take hold. In Japan, where the brand was only introduced in August, 2005, sales were just over 30,000 last year. That's a less than a tenth of U.S. sales and, estimates Merrill's Sugimoto, 90% of those were former Toyota buyers. In Europe, where sales were 50,700 last year, Lexus was eclipsed by German rivals.

Calling All Technophiles

Toyota also hopes that by adding a higher priced, higher spec Lexus model, it can now compete head to head with the BMW 7 series and Mercedes S-class luxury models. "This is probably the first time that any of Toyota's models has the similar price tag to the top lineups of BMW and Mercedes Benz," says Koji Endo, analyst at Credit Suisse First Boston in Tokyo. "Models such as GS, SC, and IS are all too cheap for the buyers of BMW 7 series and Mercedes-Benz S-class."

The sheer breadth of gadgets inside the flagship model will surely excite technophiles. On the driver's side dashboard, a camera is mounted to monitor his or her face—to assess whether the driver seems drowsy and alert him accordingly to prevent him from falling asleep. A precrash collision system, meanwhile, automatically slows the car down if it detects pedestrians in its path and assists with steering if a collision is imminent.

In the back, the left seat is equipped with a relaxation system that has "vibrating" and "pressure-point application" functions that work by repeatedly passing air in and out of eight pneumatic chambers. "It gives you a shiatsu," says Toyota's Press.

Six Coats of Paint

Even the headlamps are cutting edge. Toyota says the LS600h and LS600hL are the first models to use light-emitting diode headlamps. Produced for Toyota by Koito Mfg., the LED lamps cost more than halogen lights but use less energy and, because the light source can be placed much closer to the headlight glass, designers have more leeway to implement new ideas.

This being Lexus, the manufacturing of the LS600h is also a fine art. On June 28, BusinessWeek was invited to a tour of Toyota's Tahara (Japan) plant where the LS600/LS600hL and other models are built. At the plant, there's a heavy focus on quality. Two hundred workers are dedicated to checking that quality is up to snuff, double the amount at a regular Toyota plant. Where possible, that means efficient use of technology and worker knowhow.

One example is in the paint job. The new LS600hL has six coats of paint, which are checked repeatedly by workers and computers. On the assembly line, cameras attached to a robotic arm take multiple photos of freshly assembled cars, searching for scratches and instantly analyzing the data as they go past. Nearby, Toyota has developed a lighting system that reproduces light conditions at different times of the day. This makes it easier for workers to spot imperfections in the paint. Elsewhere in the facility, away from the factory floor, gloved workers caress painted panels, learning to detect imperfections that are barely visible to the human eye. "We have to keep evolving to stay ahead," Shoji Ikawa, Toyota's chief production engineering officer told reporters at the Tahara plant.

Of course, whether all this technological knowhow will be enough to get more Europeans and Japanese to trade in their German luxury lines for a Lexus remains to be seen. In Japan, the LS600h and LS600hL models have made a promising start. During the first five weeks the cars were on sale, 5,300 orders were taken, compared to a monthly sales target of 300 units. Still, it's unclear how may of those orders are from non-Toyota drivers or whether the high-end models will boost sales of other Lexus models.

Click here to see how a Lexus LS600hL is made.