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What In The World Is Wrong At Lexus?
Listen to the news and watch the figures, and there is little doubt the economy is in turmoil. This is often echoed by manufacturers who lead us to believe the ground had shifted below them and they were caught with too many gas guzzling SUV’s on the lots. While I have no doubt to a degree this is true, it isn’t the main reason all of the manufactures are slumping.
The simple fact remains some brands appeal to different demographics, and those groups in general may be more susceptible to the economic downturn. The manufacturers in turn try to offset the slow traffic by sweetening the pot with high residual low payment leases to keep enticing the buyers to make the purchase. In a perfect world this all makes sense, until it no longer works.
A case in point may be Mercedes Benz, whose sales are up a respectable 2.3% for the year. Not bad considering the entire market is down about 10.5% for the same time period. Mercedes consistently leases about 55% of their vehicles year in and year out, so business seems to going on as usual. Obviously those who buy a Benz seem to be unaffected by the downturn in general. With positive financials result from the parent company for the year, Mercedes is showing its true strengths in the face of adversity.
Audi on the other hand hasn’t fared quite as well, but by no means are they suffering to the degree of the others either. Down 1.9% on the year might not seem to be a great figure, but like Mercedes, Audi has not resorted to incentive based payments to keep customers coming in to the showroom and buying. With a constant leasing rate of about 50% for the year and an extremely successful Certified Pre-Owned vehicle program, Audi may be well on the way of avoiding the depreciation levels experienced by other brands. Audi and parent company Volkswagen are well on their way to another record year financial and sales year in 2008.
While Infiniti leasing figures were not available to me at the time of this article (as are most Japanese firms), a simple glance across the board appears, that business as usual applies here as well. The results for Infiniti so far into the year are just a modest drop in sales of 3.0%, however grumblings from parent company Nissan are indicating that gloomy profit results are in the future for quite sometime due to the Japanese yen no longer being held artificially low. If the economy continues on it current course, Infiniti is destine for a bumpy road for quite sometime.
BMW is a different sort of animal all together. Relying on a well deserved high residual rate, leasing a BMW has always been a no brainer. In fact BMW’s industry high 60% lease rate may be coming back to bite them. BMW has experienced a double blow with an unfavorable exchange rate, and dropping residuals in SUV’s are wreaking havoc with a profit shortfall for the industry giant in 2008. Sales in the US are down 8.0% for the year just ahead of the industry average.
What about Acura? Until recently Acura was the subject of numerous jokes. Saddled with parent company Honda’s power trains, Acura was given with only smaller 4 cylinder and V6 models. Not the formula for success when gas is cheap and horsepower is in favor. However the tables have turned because gas is no longer cheap and Acura’s lineup now suddenly makes sense to a lot more people. Even though Acura is down 14.3% for the year, they are reversing the trend in general posting a 10.7% decline for the month of July. Considering parent company Honda’s performance over the least few months Acura should continue to gain steam towards the end of the year.
You wouldn’t think I could leave out the number one brand in the US Lexus, now would you? Even though parent company Toyota doesn’t break out Lexus as separate entity, we do know the rising yen and suffering sales are having their effect not only in the US but globally. For years Lexus aficionados thumbed their noses at the establishment as they rolled through a relatively untapped market and shot directly to number one position in the US. But with a weak economy, Lexus has now proven to have an Achilles heal. For some reason or another, Lexus buyers are not buying at the same rate. Lexus is currently at a 15.2% decline for the year. While one might consider only a short lived problem, there are other factors to contend with.
Lexus has always been tightly linked with Toyota. Building on Toyota’s legendary strengths helped Lexus get to where it is. But now with numerous public recalls and several well documented quality issues with recent Toyota products, Lexus may now consider that that association more of a hindrance. It is also becoming increasingly apparent that the Lexus customer may be visibly suffering from the same ill effects as the masses. We know this by watching Lexus’ historically low lease rates skyrocket over the last year. In the first 7 months of 2007 year Lexus leases accounted for 33.2% of all sales. For 2008 that figure has jumped to 42.8% for the first 7 months of 2008 without a formal incentive program in place to boost leasing.
The above figures are fine if you are stilling selling vehicles. Leases typically allow the buyer to buy more for less monthly outlay. However Lexus sales figures fail to show a trend in that manner. It almost can be concluded that Lexus buyers are now seeking out ways to afford the same car for less and save a little money in the process.
Over the last 3 months Lexus sales figures are averaging an almost 25% drop in sales.
It is may be easy to blame Lexus woes a SUV heavy lineup. Actually this may not be the case; Lexus SUV sales for the year are only down only 10.1%. The problem is the core line up of cars is no longer selling, actually down 18.3% for the year. With a full compliment of hybrids in this mix Lexus has failed to gain the critical leverage it needed to continue forward in the most difficult of times. With precious few new models on the horizon Lexus seems to have back itself into a corner.
Many were shocked when Toyota overtook Ford sales in the US and moved behind GM. However during this same time frame Lexus started losing ground in a big way to rival BMW. A while back I predicted BMW would overtake Lexus as number one in the US this year. Unless something radically changes soon, Lexus will lose the number one in the next quarter, but it could be as early as next month if Lexus stumbles. A mere 3466 cars separate the two positions and BMW has been relentlessly chipping away at that figure since mid last year. All it takes in one good month for BMW to make the move.
So back the headline “What in the world is wrong at Lexus?” The evidence makes is seem they haven’t simply hit a bump. There are too many factors to point to this. Have they done so well at targeting the entry level of market (ES and RX sales account for 56% of all Lexus sales) that the rest of the lineup can no longer carry the brand? Have they cultivated a clientele that merely that simply aspires to be like the rest? Has the close association with parent Toyota tarnished the brand? Or simply is everyone else in the market doing a better job at this time?
We have a lot of smart and well informed readers out there. So take a look at the facts tell us what it is going to take to get Lexus back on track.