Lexus Falls Behind Rivals

The long reign of Toyota Motor Corp.'s Lexus atop the U.S. luxury car market is almost certain to come to an end this year, a victim of an aging lineup and production disruptions caused by the March 11 earthquake in Japan, reported The Wall Street Journal.

Shutdowns at Toyota plants in Japan, where all Lexus models except one, the RX 350 sport-utility, are made, threaten its already thin hopes of retaining its crown for the year, concedes Mark Templin, Lexus general manager in North America.

"It will be some time before we see where we stand," said Mr. Templin. As of early April, he said: "We are right on our sales goals; we are right on our budget."

In the first three months of the year, Lexus's U.S. sales declined 4.4 percent, even though overall auto sales rose. Among luxury brands, Lexus slipped to No. 3 for the quarter, behind BMW and Mercedes-Benz.

Toyota's Japanese plants are due to resume production next week for 10 days, but at about half their normal production level, the company said last week. The auto maker recently warned U.S. dealers there could be "significant" supply shortages in May, June and July, prime U.S. car-buying months.

A tumble to second or third place would mark a key shift in the luxury auto business and underscore the string of misfortunes that have hurt Toyota and weakened its bottom line in the last few years. The decline opens the door for BMW AG, Daimler AG's Mercedes, Volkswagen AG's Audi and General Motors Co.'s Cadillac to grab new luxury-vehicle customers, say analysts.

Kurt McNeil, vice president of sales for Cadillac, said Cadillac has gained two percentage points of market share in the luxury crossover segment with its SRX while the Lexus RX 350 has lost a point of share.

"They have been the gorilla in the room in that space, and we have been taking it to them," said Mr. McNeil. Cadillac sales are up 38 percent this year through March compared to a year ago.

Lexus burst onto the market in 1990, a daring move by a company known for inexpensive and well-made small cars. Few then predicted it would quickly become a fearsome rival to decades-old brands.

After just 10 years, Lexus sped past Mercedes, BMW and Cadillac to become the top selling luxury make in the U.S. It put a halo on Toyota's overall image, and generated as much as half of its North American profits.

Lexus's image was hurt last year by the recalls that engulfed Toyota and widely publicized incidents in which certain Toyota and Lexus models seemed to accelerate on their own. One crash that took the life of a California highway patrolman and three members of his family involved a Lexus ES. It was blamed on a floor mat that had depressed the gas pedal.

Troubles for the brand were already brewing before that. Toyota shifted Lexus's focus from maintaining its leadership position in the U.S. market to establishing the brand in Japan, Europe and China. That distracted management and hurt its momentum in the U.S..

Auto makers often stagger new vehicle introductions to ensure a steady stream of updated models in showrooms. But in its rush into Europe and Japan, Toyota grouped the redesigns of its three best-selling sedans, the IS, ES and LS, in 2006 and 2007. Now those aging models are losing ground to more recently redesigned vehicles from BMW, Mercedes and Audi.

All three German auto makers have fresher large sedans that compete with the LS, the Lexus flagship. For instance, BMW upgraded its 5- and 7-Series in the past two years.

Lexus will show off a prototype at the New York auto show this week that hints at a new, edgier styling for future models.

Meanwhile, new competitors to Lexus have emerged. Hyundai Motor Co.'s Equus luxury sedan, for example, offers the same horsepower as the LS and more standard features such as a navigation system. Yet its entry list price is almost $10,000 under the LS's.

As recently as 2007, the IS, ES and LS and other Lexus cars made up two-thirds of Lexus' sales; through March of this year, they account for less than half. This year, sales of those models are down 7 percent.

Kyle Dailey, a 21-year-old student in Boston, recently checked out the Lexus IS 250, but found the car was a bit cramped inside, and didn't offer the kind of acceleration he prefers. He was also turned off by "the awful plethora" of plastic trim on the interior.

Mr. Dailey found the interior of the BMW 328xi more to his liking, and bought one. "In the most basic of 3 Series you still feel a little pampered," Mr. Dailey said. "In the Lexus, it was a different story."

This year Mercedes and BMW have been offering dealers cash incentives aimed in part at taking sales from Lexus. BMW just launched new versions of two of popular models, the 5 Series, a mid-sized sedan, and the X3 small sport-utility vehicle, which competes with Lexus's top-seller, the RX 350. First-quarter X3 sales more than quadrupled, while RX 350 sales rose 8.3 percent.

This year "is the best chance I've had" to gain market share, said Jim O'Donnell, president of BMW's North American unit.