Lexus ES Candidate for N. American Production

DEARBORN, MI – The entry-level Lexus ES, revamped for the ’13 model year and heavily counted on to boost brand sales and draw first-time buyers, appears a strong contender for North American production, as well.

Toyota has confirmed it is considering sourcing additional Lexus vehicles in the region, but has not said what models are among the leading candidates.

Speaking here at a media backgrounder on Lexus’ newest model, Tim Morrison, vice president-sales and dealer development, says retailers are lobbying hard for a North American-built ES.

“One of the requests we’ve had from our dealer council is to figure out a way to get the ES – or one of our other volume vehicles – here just to blunt the (negative effects of) currency exchange,” he says. “(But) when you look at whether you want to shift production to North America, that’s a very big decision. It’s a lot of money, and there’s timing with changeovers, etc.

“I’m not in those meetings, but I’m sure it’s a conversation that’s taking place. We’re not there yet, but I can tell you it’s coming.”

Morrison says there currently isn’t excess capacity available in North America to add Lexus production, and so far there’s enough capability in Japan to serve all markets.

However, the brand is looking to grow globally, which could cause product allocation to tighten. “That would be a good time to consider North American production,” he says.

The ES currently is built in Kyushu, Japan, and the U.S. market is expected to account for 50% of output, with China taking 30% and Europe 20%, officials say. The U.S. is credited with about 40% of Lexus sales overall.

For the first time since helping to launch the Lexus division in 1989, the ES does not share its basic architecture with the lower-priced Toyota Camry. Instead, this model moves up-market a notch, employing an all-new platform that also will do duty below the skin of the upcoming Toyota Avalon, due to hit the market later this year.

The upscale move, plus the car’s first-ever hybrid powertrain option, is expected to give buyers a reason to migrate to the Lexus brand, which fell from its perch as the U.S.’s No.1 luxury brand last year.

“There are more than 1 million ES buyers on the road today,” Morrison notes. “But we need to look beyond our current customers to hit our goals.”

Those targets include sales of 5,000 ES cars per month in the U.S., once the new model arrives in volume following its August debut, and brand deliveries topping 250,000 vehicles.

Last year, Lexus found buyers for about 41,000 ES sedans, according to WardsAuto data, and total deliveries for the brand surpassed 198,500 vehicles, when a tsunami in Japan and flooding in Thailand limited supplies.

Expected to be the biggest draw for new buyers to the brand is the ES Hybrid, which shares its powertrain with the Camry Hybrid, namely a nickel-metal-hydride battery, 2.5L gasoline engine and electric motors that provide a combined output of 200 hp.

“We think there’s an opportunity here to pull in younger and newer buyers with the hybrid,” Morrison says.

Not disclosed is how many conquest sales Lexus is targeting for the ES, but Morrison says the hybrid model is likely to account for 25% of total sales. “Lexus owners have been looking for a hybrid in the ES,” he says.

To capture more new-to-the-fold customers, the brand will emphasize event marketing – such as sponsorship of this weekend’s U.S. Open golf championship – to put the car smack dab in front of its intended audience and get potential buyers behind the wheel.

“Yes you have to have broadcast TV. Yes you have to have print (and) digital marketing,” Morrison says. “But the engagement marketing is so important to the brand. You have to get these guys into the cars.

“Today’s (ES) buyer typically is a 50- to 60-year-old male,” he adds. “We’re still thrilled to have those buyers, but we want to get more of the younger buyer, closer to that 50-year-old range.”

Because of its price positioning, the entry ES represents Lexus’ best chance at drawing new buyers. But it won’t be easy, Morrison says, noting the number of competitive models available in the segment. “I don’t know how the customer decides what he wants.”

Although overall Lexus sales dropped 13.4% last year as supply shortages hampered the brand, Morrison doesn’t believe customers have abandoned the marque permanently, but will return to as a largely stale showroom is refreshed this year.

Lexus plans to launch nine all-new or highly refreshed models in 2012, including a revamped LS flagship. Not counted among the nine are F-Sport derivatives, which will see the lineup of performance offshoots expanded this summer with a version of the RX cross/utility vehicle.

“As we know in this business, product is king,” Morrison says. “And we were late in the lifecycle on a couple of our vehicles (last year). As the new vehicles come out, we’re having great success.”

The new ES is slightly bigger than the car it replaces, has a sportier appearance and a longer list of luxury and safety features. Seats feature better side bolsters and steering has been quickened from a 16:1 overall ratio to 14.8:1 in an attempt at giving the car more of a performance feel. Its 10 airbags are considered a best-in-class by Lexus.

Safety features include a Lexus first “Rear Cross Traffic Alert” device. It uses the blindspot-detection system to warn of cars approaching at right angles behind the car, so that a driver backing out of a crowded parking spot can avoid collisions with oncoming vehicles.

ES volume will be limited this year, as the car isn’t expected to see widespread availability until the September-October timeframe. But the new entry model’s impact on 2013 sales is expected to be significant.

“It will help dramatically to improve our volume,” Morrison says. “It’s fair to say if (250,000 vehicles) is where we land this year, that will be the low-water mark for next year.”

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