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After a Decade of Growth, Lexus Retooling Its Lineup

The company has established itself in the top tier of luxury auto makers. But as its models age and competition nips at its wheels, the company is freshening its fleet and hopes to energize sales with a redesigned LS sedan and 2 all-new cars.


DETROIT — A year ago, Lexus was steamrollering toward an unthinkable goal: Just 10 years after its birth, it was the best-selling luxury brand in the U.S., toppling longtime industry leaders Cadillac and Lincoln.

In the end, the division of Japanese giant Toyota Motor Corp. was surpassed by DaimlerChrysler's Mercedes-Benz and ended up No. 2. But the race, which went down to the wire, served notice: Americans no longer owned the luxury segment.

Luxury vehicles by their nature cater to a limited audience, representing about 1.36 million, or 8% of the 16.96 million new passenger vehicles sold in the U.S. during a record 1999. But sales in the segment build brand awareness for corporate parents such as General Motors Corp., home of Cadillac, and Ford Motor Co., parent of Lincoln. That said, the major auto companies are after more than cachet. Bottom line: Luxury cars--and increasingly trucks--yield tremendous profit, sometimes $15,000 or more per vehicle.

After its stellar 1999, Lexus isn't sitting still. The brand is introducing a redesign of its flagship LS sedan and is adding two all-new cars, including its first convertible. Lexus says it will build its most popular vehicle, the RX 300, in Canada and is believed to be weighing production of a luxury minivan in the U.S. To top it off, the brand could come full circle and make a move no Japanese luxury division has done: sell cars under its own badge in Japan.

This year Lexus' performance is a bit more subdued than last; it's at No. 3 among the luxury brands, behind Lincoln and Mercedes-Benz.

"The car side is suffering from a couple of products getting long in the tooth," said Christopher Cedergren of the automotive consulting firm Nextrend in Thousand Oaks. The Camry-based ES, in particular, is aging and won't get refreshed until there's a new Camry in about another year.

So far this year all of Lexus' passenger cars--the ES, GS and LS--are down from a year ago, and the LX 470 sport-utility vehicle is up only slightly, leaving Lexus something of a one-truck pony with the popular SUV-like RX 300 shouldering virtually all the sales expansion this year.

And since they are imported from Japan, Lexus vehicles are burdened by the high value of the yen, which makes Japan-made products more expensive in the U.S., notes Takashi Tomioka, an auto industry analyst at Daiwa Institute of Research America Inc. in New York.

"Most of Lexus' import competition is from Europe, and with the euro currency cheap, the Europeans gain a price advantage here," Tomioka said.

Call this a reloading year for Lexus. The IS 300--an all-new sedan aimed at younger, entry-level buyers--went on sale in June, and a totally redone flagship LS, its engine boosted to 4.3 liters, goes on sale next month. And in the spring, Lexus will begin selling the SC 430, a high-powered convertible with a V-8 engine.

The LS, IS and limited-production SC "should help resurrect their car sales in 2001," analyst Cedergren said. "The only weak link is the ES 300, because many potential buyers looking at the ES have gone to the RX. But it's a very acceptable rate of cannibalization, because with the two together, they're selling twice as much."

Not that Lexus is in trouble. It still has sold 8,500 more vehicles through August than it did in the year-earlier period. And fewer than 2,000 units separate Lexus from this year's sales leader so far, Lincoln.

"We've had phenomenal growth," said Denny Clements, Lexus' newly appointed general manager. "This year we'll sell more than 199,000 vehicles, double three years ago."

But he brushes aside thoughts of becoming the market leader.

"It's never been an end goal to be No. 1 in sales but to be No. 1 with our customers, relationships and servicing," said Clements, who joined Toyota 17 years ago from Lincoln Mercury. "It would be easy to crank up volume and become something other than Lexus. But we don't want to lose what is Lexus."

In its 11-year existence, Lexus has forged an ironclad reputation, based on the renowned reliability of its Toyota-based engineering, and accolades for its dealership experience.

Lexus consistently tops the rankings in surveys by respected market researcher J.D. Power & Associates of Agoura Hills. In two Power reports released this summer, the brand ranked No. 2 in the sales-satisfaction index, which rates customers' sales experiences, and No. 1 in the customer-satisfaction index, which surveys impressions after three years of ownership.

The brand is trying to carry that legacy further with the just-released IS 300, which starts at $31,000. With its 3.0-liter, 215-horsepower inline-6 engine, it hews to the "heritage" of European luxury: rear-wheel drive and an emphasis on performance and handling.

The new flagship jumps from the LS 400 to the LS 430, a more chiseled design with a 4.3-liter, 290-horsepower V-8 under the hood. This third-generation version adds space inside while basically keeping its outside dimensions.

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