Lexus Sees Diminishing Demand for Large Luxury Cars

EAST PALO ALTO, CA – Despite a major refresh of its flagship LS sedan, Lexus says the best volume days of the large-car Upper Luxury segment likely are in the rearview mirror.

"There's some great cars in this segment, but over time you're going to see this segment decrease," Mark Templin, group vice president and general manager-Lexus U.S., tells media at a '13 LS preview here. "Over the long term, you're going to see fewer and fewer (sales)."

Deliveries of the current LS have averaged about 2,000 a month since its launch in late 2006, Templin says. However, Lexus is targeting 1,000 units for each of the ’13 model’s first three months.

Last year, Lexus sold 9,568 LS sedans in the U.S. The car's best year was 1990, when 42,806 units were delivered, WardsAuto data shows.

Templin blames demographics for the drop in demand for the big, sometimes ostentatious cars, noting Baby Boomer buyers, the lifeblood of the segment, are choosing to downsize.

"The Baby Boomers that grew up in these cars…are getting to a point where they don't need that (size vehicle) anymore, so some are moving" to Middle Luxury sedans such as the Lexus GS, he says.

Ketan Renade, product planner for the LS, says the poor fuel economy of large sedans is a turnoff to some consumers. "Even the luxury owners are becoming more environmentally conscious. They want cars that get 30-40 mpg (7.8-5.9 L/100 km)."

Such buyers would rather have a car such as the Lexus ES Hybrid, which averages 40 mpg, he says.

Although there are rumors about a future V-6-powered LS 600h, the '13 hybrid carries over the '12 model's 5.0L V-8, which emphasizes V-12-like performance over fuel economy.

"For the next-gen, which will come out soon, we'll focus on MPG much more, and that's when you'll see a much bigger increase in fuel economy," Renade says. The current LS 600h averages 20 mpg (11.8 L/100 km).

Templin says despite fuel-economy concerns, the large-luxury segment is becoming more crowded. New cars joining the LS, Mercedes-Benz S-Class and BMW 7-Series are the Audi A8, Jaguar XF, Hyundai Equus and Porsche Panamera.

"I think we're all going to have smaller shares in a segment that's going to shrink," he says.

WardsAutodata shows the LS' share of the Upper Luxury Segment tumbling in the past five years, from 37.8% in 2007 to 16.9% in 2011 and 11% in the first seven months of 2012. However, Lexus still sees the LS as a key player in its lineup.

"Flagship (means) the best or most-important thing owned or produced by an organization," Templin says, noting a flagship car sets the tone for an automotive brand and introduces new technologies.

But keeping the LS doesn't preclude Lexus from adding other flagships. The brand already offers the LFA supercar, and Templin hints other models are due in the future.

The '13 Lexus LS goes on sale in the U.S. in November with a number of major changes, including the new family spindle grille already introduced on the new GS and ES. The car’s interior is almost completely new, with plentiful light-emitting diodes and the next generation of Lexus' Remote Touch controller.

Other refinements include ride and handling, new air-suspension modes, Sport S, Sport S+ and Comfort, and an advanced Pre-Collision System that brings a car traveling less than 25 mpg (40 km/h) to a full stop.

Templin says Lexus is targeting a "progressive leader" demographic with the '13 LS, meaning buyers who not only are wealthy but also "pioneering and visionary."

Lexus plans to market the LS through traditional media outlets, such as TV and the Internet, but it also will have a presence at events such as the upcoming L.A. Food & Wine Festival.

A recent webcast bridged online and event marketing with the '13 model's introduction at a celebrity-filled photo exhibit drawing 83,000 viewers from 99 countries, Templin says.

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