Lexus s Entry into the U.S. Auto Market, Part 2

As we saw in Chapter 7, Lexus brought overwhelming resources to bear on an emerging segment of buyers to take the U.S. luxury automobile market by storm . But focus was merely one of the keys to Lexus s success. The successful combination of design, manufacturing, marketing, sales, and service functions created a luxury automobile that American automakers could not match in terms of quality and performance and that European automakers could not match in terms of price and service.

When Chief Engineer Ichiro Suzuki sent twenty specialists from Japan to the U.S. to conduct market research in 1985, only fifteen returned. Five remained in California, the heart of Lexus s target market, to design the LS 400 s exterior and set up shop in a rented house in Laguna Beach. Suzuki s intent was to align the LS 400 s look with the tastes and preferences of young, affluent, and price-sensitive U.S. buyers while maximizing aerodynamics and trunk space.

While Suzuki opted to relocate the design function in the heart of the target market, he kept the manufacturing function in a state-of-the-art, automated facility as close as possible to his engineering team in Toyota City, Japan. His intent was twofold. First, he wanted his team to work in close cooperation with manufacturing personnel to maximize the efficiency of the production process and ensure the highest standards in quality. The oversight of and responsibility for Flagship Quality groups, cross-functional teams responsible for the development and production of the LS 400 s various components , started with engineers on Suzuki s team and were later passed to manufacturing as components progressed from development to production. Second, he wanted to leverage Toyota s most advanced, cutting-edge automation facilities to mass-produce a level of quality superior to that of German-engineered automobiles while avoiding the Germans costly, labor- intensive assembly processes. Said one observant junior engineer, Suzuki-san understood the spirit of Lexus. He is a well-respected engineer who knew what it would take to build a quality, luxury vehicle that could compete right out of the box with such historic marques as Mercedes Benz and BMW. ^[8]

To reach its target market in the most effective manner, Lexus hired a U.S.-based cultural anthropologist and a New York image consulting firm: the anthropologist identified the characteristics most important to U.S. buyers, and the image consulting firm coined the Lexus name . The strategy was not to produce a better Mercedes but to design a car that many Mercedes buyers would see as offering better value. To sell to this new class of discerning luxury car buyers in the most effective manner, Lexus created an entirely new dealer network: franchisees invested $3 to $5 million per dealership and received extensive instruction in customer service at a Lexus training facility in Scottsdale, Arizona. And to rival the service programs of its U.S. competitors , Lexus relied on a network of independent service providers where local dealers were not yet available: after the LS 400 s first recall for three minor flaws, any Lexus owner who lived more than one hundred miles from the nearest dealer received an at-home visit from a certified Lexus mechanic .

As a result of Lexus s combined arms approach, polished and refined dealers were able to offer prospective buyers a luxury automobile with an unrivaled set of features: California-inspired design, the performance, reliability, and quality of Japan s most advanced manufacturing processes, the convenience of nationwide U.S. service and support, and a base price of just $35,000. American automakers haplessly tried to respond with rebates on their lackluster offerings, while German automakers, after disassembling the LS 400 and determining that producing a comparable automobile would then cost twice as much, could only quip, They have no tradition. ^[9] No matter where American and German automakers turned, Lexus had an answer.

Leadership Lessons

Lexus s relocation of its design function and heavy reliance on indigenous partners first show us how a company can use combined arms to enter a foreign market successfully. Moreover, Lexus s colocation of its engineering team and manufacturing facility in Japan enabled the highest degree of cooperation among personnel across functions ”a key determinant of success in any combined-arms effort. Finally, Lexus aligned the impression its sales force made on prospective buyers with the quality of the product its manufacturing process produced by investing significantly in customer service training for its dealer franchisees.

^[8] Vasilash, Gary S., The Lexus GX-470: You Want Me To Drive This Where? Automotive Design and Production , December 2002.

^[9] Stertz, Bradley, Trying to Crack the Luxury Car Market, Wall Street Journal , August 7, 1999.