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Japan Luxury Car Cuts Into Germans' Share of U.S. Sales

October 21, 1989|JAMES RISEN | TIMES STAFF WRITER

DETROIT — Lexus, Toyota's new luxury car line just introduced in September, already has the Germans on the run.

In its first full month on the market, Lexus stunned its West German competitors by actually outselling BMW in the United States.

Toyota officials said 35% of their first buyers have traded in European luxury cars, mainly BMW and Mercedes-Benz models.

The instant conquest by Lexus of so many affluent buyers of traditional West German luxury sedans has caught both the Japanese and the Germans by surprise.

Initially, Toyota had expected most of its sales to come from owners of less-expensive Japanese cars who wanted to trade up, but so far those buyers have accounted for less than one-third of Lexus sales.

Instead, Lexus seems to have scored a direct hit on BMW and Mercedes owners who are no longer willing to pay the extraordinary prices that the West Germans now charge. While certainly not cheap--the top-of-the-line Lexus LS 400 carries a base price of $35,000--it is still about $20,000 less expensive than comparable West German sedans. The second Lexus model, the ES 250 sedan, has a base price of $21,050.

"I think there's a trend of people stopping and rethinking how they spend their money, perhaps more than they did a few years ago," said Lexus General Manager Dave Illingworth. "It might have been tougher for us two years ago, but today people aren't sure they want to spend $58,000 for a car."

Analysts say Lexus has been successful by undercutting German prices, while still offering cars with comparable attributes. "It was a deliberate strategy," noted Cynthia Certo, an analyst with Integrated Automotive Resources, a Wayne, Pa., research firm. "They could have gotten higher prices for the LS 400, since comparable German cars are much higher."

Publicly, BMW officials have tried to dismiss the threat posed by the Japanese. "I think it is flattering that they are aiming at us," said Karl Gerlinger, the new head of BMW's North American operations. "That means that they still look to us as being the leaders."

Yet BMW executives are clearly worried and are moving fast to respond. Earlier this month, BMW announced its first price cuts ever and also mailed out rebate certificates to BMW owners that are good on the purchase of new BMW models. Next spring, BMW also plans to introduce its new 318is to re-establish itself in the $20,000 price range; its cheapest car now sells for just under $25,000.

Mercedes is also reacting to the increased competition in the luxury market, although at a far more stately pace. Next week, it will introduce its new 300 SL and a 500 SL model, replacing the aging 560 SL, last re-designed in 1971, thus updating the traditional Mercedes look for 1990. Yet prices will remain in the stratosphere--the 300 SL will go for $72,500 and the 500 SL for $83,500; the 560 SL they replace went for $64,230 in 1989.

But the Japanese move into the luxury market in this country is just beginning, and the West Germans, already suffering from slumping sales, seem destined to lose even more business in the coming years.

Next month, Nissan will introduce its Infiniti line, targeted at those same buyers of West German luxury sedans. Its Q-45 four-door sedan will have a base price of $38,000, while its low-end M-30 two-door coupe will go for $23,500. "It appears to me we will get many more (European luxury car owners) than we first thought," Infiniti General Manager Bill Bruce said.

Several smaller Japanese auto makers, most notably Mazda and Mitsubishi, have also been making plans to enter the luxury market in the United States, and next summer Honda's Acura luxury division will go after the sports car business now monopolized by the specialty European auto makers. It will introduce its Acura NS-X two-seat sports car, selling for between $50,000 and $60,000.

But perhaps most worrisome for the Germans, Toyota's Lexus division has plans to quickly expand. In the spring of 1991, it will add a two-door coupe to its lineup.

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