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Lexus battles to achieve network goals

Stuart McCullough keeps his focus on the right network for Lexus in 10 or 15 years as he faces the retailing problems which beset the development of any fledgling marque.

Three years into the task of forming a stand-alone network that will represent Toyota's uppercrust brand, the director of Lexus GB admits: “We haven't achieved everything we set out to achieve.”

It seems not to be an admission of failure, more an acknowledgement of the bumpy ride awaiting anyone with an uncompromising attitude.

“We are working to a long-term plan,” said Mr McCullough, “and intend to build a firm foundation for 2010 or 2015. By then, we want to have assumed a different place in the market for Lexus.

“We can only have more sales and a higher market share if we achieve each step successfully.”

Lexus was created in 1989 though development started in 1983, when Toyota Motor Corporation decided a new marque would stand more of a chance of challenging the likes of BMW than cars with its own badge, however good. The first Lexus was sold in the UK in 1990.

The creation of a solus Lexus network has been tough but September was a triumph when sales totalled 2,126 – higher than for the whole of 1997.

In Britain's booming new car market, total sales for 2001 to the end of October were 34.24% up year-on-year. The Lexus share was 0.47%, with 9,178 registrations, compared with 0.38% and 6,837 in the corresponding period of 2000. The UK now has 27 Lexus centres, representing two-thirds of annual sales, and a target of 48, which is seven fewer than the target set in 1998.

Mr McCullough said there had always been concern among dealers about the high level of investment needed to create a Lexus centre. The idea now seems to be to match the performance of Lexus in the US, where its 197 dealerships have an average throughput second only to Toyota's.

The target reduction for Lexus centres in the UK has a similar objective, by giving some retail groups bigger territories and reducing over-representation in key areas. The aim is to ensure four in five potential buyers of a new Lexus are within 30 minutes drive of an outlet.

Lexus GB claims its network has industry-leading profitability and that residual values are the highest in each sector where it competes.

So far, so good, but Lexus GB is already planning for September 2002, when the flow of former company cars begins at the end of three-year agreements.

Mr McCullough said: “The full effect will be from 2003 because of volumes and it's our next big challenge.

“We want to head off over-supply and we'll do that by investing in a programme to build a demand for used Lexus models.”

This year Lexus GB is spending £200,000 on marketing its used cars – the investment will be increased to well over £1m in 2002.

The lack of a diesel is acknowledged as another difficulty. It is one reason for the failure of Lexus to become established in other European markets where many executives demand diesel cars.

Audi, BMW and Mercedes-Benz are well placed to take advantage of an expected surge in company car diesel registrations from the spring, when tax to be paid will be based on carbon dioxide emissions.

Mr McCullough, who does not expect a diesel Lexus before 2004, said: “We must not use a diesel engine which does not meet Lexus criteria. And yes, it gives us cause for concern.”

Those Lexus criteria include a plastered ceiling in the showroom. “Most customers will not notice it, but it influences the feel of the dealership,” said Mr McCullough. “It's like locations – we endure a host of planning regulations so we can deliver what customers expect when they're buying a £55,000 car.”

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