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Lexus will not chase sub-$40k SUV market

Oh what a feeling: Plans for a Lexus sub-compact SUV based on Toyota’s upcoming CH-R are not forthcoming, according to local management – and even if there were, it may not come to Australia.

Sub-compact SUV not on horizon for Lexus as it seeks to retain prestige positioning

25 Nov 2015

LEXUS is unlikely to chase its luxury rivals into the smaller, cheaper end of the SUV spectrum, fearing the erosion of customer service that may result from greater sales.

With the reveal of sister brand Toyota’s CH-R sub-compact crossover at the 2014 Paris motor show, before a second iteration was uncovered at Frankfurt in September, reports have suggested that Lexus would head down the path that Audi is about to take with its forthcoming Q1 crossover.

“We don't have any plans immediately for a compact SUV in Lexus, I can tell you that up front,” said Lexus Australia chief executive Sean Hanley at the launch of the RX mid-size SUV in Sydney. “We (Toyota Corporation) have a concept car at the moment, but that's what it is.

“However, the difficulty I have with the compact SUV is brand positioning. Because for me, we won't be bringing a car in sub-$40,000 in compact SUV anyhow. It's not going to happen, because frankly I'm not sure that's where a luxury brand should be.”

The company’s opening gambit in the SUV stakes is the NX200t, which retails for $52,500 before on-road costs, while the new RX has increased in price to start from $73,000 before on-roads.

Mr Hanley expressed concern that the brand’s values may be more difficult to uphold with an influx of additional, lower-end clientele.

“I'm not sure you can provide the customer experience of sub-$40,000 (customers) that we richly wish to continue giving,” he said. “And we have another brand that handles that part of the market – it's called Toyota, right? For us there is certainly a market for a compact SUV, but we won't be coming in at the cheapest price.

“If Lexus ever does bring a compact SUV in, we won't be going to do it for the cheapest price or for the most volume.”

Mr Hanley reiterated that the $40,000 figure did not represent a bottom-line price figure for Lexus, but acknowledged that selling below that figure would be an effective way to chase market position.

“What other brands do is what other brands do,” he said. “They see it another way, but if being number one's all you're about, of course you bring in a cheap compact SUV. I think our investment in Lexus as a brand, our investment in the customer experience, is far more important than the volume scenario.”

Lexus’ most affordable model is the CT200h hybrid hatch that kicks off from $37,990 plus on-roads and tops out at $54,990.

The small NX SUV is by far the brand’s number-one performer, logging 2501 sales to the end of October in its first full year on sale. Its other prospects are showing signs of softening across the board, with the IS sedan off by 21 per cent year on year at 1820 units, the large GS sedan down 49 per cent at 115 units and the ES showing a 38 per cent downturn at 355.

The new RC has taken up some of the IS volume with 475 units sold for the year, while the run-out RX has shed just 12 per cent year-on-year at 1376 sales.

In terms of overall sales, however, Lexus is up 28.8 per cent compared with the same period last year, with 7446 units shifted.

Mr Hanley acknowledged the downward trend of some of its models, but said he believes that the implementation of the 2.0-litre turbocharged powertrain across a wider range of cars will help significantly.

“The good news is we're about to launch the 2.0-litre (turbocharged engine). It’s in the GS, RC and IS which is out there now, as well as the NX and the RX. Those cars – particularly IS, I think – will get stimulated by the new powertrain.

“It’s also clear is that new products are driving the market, and we're in quite a unique time at the moment where they (rivals like Mercedes-Benz, Audi and BMW) are launching a lot of new product.”

Mr Hanley pointed out the core business of the brand is volume-based, but believes that Lexus’ continued focus on customer service occupies a significant part of the equation.

“You've got to sell cars. At the end of the day, that's what we're here to do,” he said. “For me, and Lexus philosophy has always been clear, volume will never, ever become more important than the customer experience. They all look at 32 per cent growth this year, and yes it's significant, but actually I'd be happy with five to 10 per cent, as long as we could maintain that customer experience.

“It's a longer-term plan of sustainability and viability and it's important for me as the leader of Lexus that we never fall into that volume behaviour at the expense of customer experience. If it's a natural outcome from great product, great value, nice marketing and a great customer experience, all good.”

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