Lexus buffs up Chinese showrooms
Examples include the recently added IS 250 sedan and IS 250C convertible, whose 2.5-liter engines are much smaller than the 3.5-liter found in the RX SUV popular in the US. Lexus plans to sell a new entry-level hybrid Lexus, the CT 200h, later this year that will have sportier handling than Toyota's Prius. The model, promoted as the "darker side of green", will compete with BMW's 1 Series, the Audi A3, and Mercedes-Benz's B-Class models.
John Zeng, a Shanghai-based analyst for J.D. Power, said Toyota is at a disadvantage because it imports all the Lexus cars it sells in China. Importers pay a 25 percent custom duty and a 17 percent value-added tax. There's also a consumption tax, based on engine size, that can be as high as 40 percent. That can make Lexus prices too high for younger buyers, Zeng said.
"Toyota insists on producing Lexus in Japan," he says. "But if you want to achieve the volume of your competitors, you have to follow your competitors' strategy. BMW, Audi and Mercedes-Benz are all focused on localizing production of their models."
Analysts said Toyota has been reluctant to entrust non-Japanese plants with the luxury brand because they want to control quality and protect their intellectual property. The automaker is also moving forward cautiously after a year of global recalls for problems including quality glitches in Lexus models.
"Especially now, we're not going all out to go as fast as we can in China," said Karl Schlicht, head of the brand's global product and marketing division. "We've learned a big lesson."
Lexus' underdog status is partly due to its later entry into China. It opened its first dedicated showrooms in the country in 2005, although it began importing cars in 1993. Audi is owned by Volkswagen, which entered the market in 1985.
