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Lexus Sits on Its Hands amid Heated Luxury Car Competition

Date:10-27 08:49 Source:未知 Authour:中商汽车

Lexus Sits on Its Hands amid Heated Luxury Car Competition

Lexus, one of the very few luxury car brands in the Chinese auto market to import rather than localize its products, released official information on August 22 that a total of 783 Lexus cars were damaged in the Tianjin warehouse blast, and it promised to announce the models and vehicle identification numbers on its official website.

"In a market experiencing such fierce competition, it's impossible to achieve successful sales simply through local production," said Ezumi Tetsuya, Lexus China Executive Vice President, in response to questions about the company's policy on local production at the launch event of the new ES on August 18, four days before the brand announced the number of the blast-damaged vehicles.

The ES is Lexus' best-selling model in China and the previous version had a average month sales volume of about 3,000 units last year. "We plan to sell at least 1,000 units more per month this year," Tetsuya told 21st Century Business Herald.

Starting with the new ES, Lexus will launch a slew of products in the Chinese market before it attempts any major breakthrough in local production. Following the new ES launched in August, it will introduce the IS in September, a full-size luxury SUV LX in October, and a mid-level luxury SUV RX in November.

However, Lexus has found itself under scrutiny with the launch of ES. The first issue is positioning. Lexus defines the ES as a large and medium-sized sedan that competes against such luxury C-Class cars as the Audi A6L, BMW 5 Series and Mercedes-Benz E-Class. But based on it size, critics think the ES is just a mid-size luxury car positioned between the B-Class and C-Class and its competitors should be the Audi A4L and BMW 3 Series.

In response to these doubts, Tetsuya said "ES is indeed a model positioned between B-Class and C-Class in terms of size, but positioning isn't decided by size alone. We need also to take into account the engine performance and configurations."

In addition to positioning, the price of the new ES has also attracted attention. Seven models of the newly modified Lexus ES have been launched at three power levels , including the ES200, ES250 and ES300h, with an official price range of RMB298,000-498,000.

What can the ES do to maintain a stable and high price in the Chinese auto market, where a price war is in full swing? In the current luxury car market, pricing of new products is very tricky because if you price the products according to the competitors' manufacturers' recommended price, you will have to lower that price the minute your product hits the market. But if you price your products according to competitors' retail prices, the new products will be launched with a very low positioning.

"The ES can set its own standard because as a B+ Class model, there is no benchmark in this segment, so it can be priced with reference to either C-Class or B-Class models, where the price differential ranges from RMB80,000 to RMB100,000," said an industry insider in an interview with 21st Century Business Herald.

Although the ES price won't directly affect other luxury car brands, its competitor, the Audi A4L, is still feeling the pressure. But the A4L offers a discount of about RMB70,000 in the market, so the new ES' advantage in performance-price ratio isn't going unchallenged.

Currently a tier-2 luxury car in China, Lexus is attempting to further consolidate its position through an intensive series of new product launches. 930,000 luxury cars were sold in China in 2015H1, representing year-on-year growth of 9%, and indicating slowing growth in the luxury car market. Imported luxury cars in particular saw 7% negative growth for the first time amid an intense price war. In the tier-2 camp of luxury cars, following behind Land Rover and Volvo Lexus sold 39,900 cars in the first half of the year, up 6% year-on-year.

"There has been an ongoing price war among luxury cars since 2012. The retail price of luxury cars has been falling steadily and the manufacturers' recommended prices are barely holding on, so it no longer makes sense to keep the recommended price unchanged - it benefits neither the dealers nor the consumers." A dealer in tier-1 luxury cars told 21st Century Business Herald that even though many manufacturers have adjusted their sales targets, the reduction in retail prices is still too sharp, indicating that the sales target is still unreasonably high and stock dumping still exists.

Despite the fierce price war in the Chinese luxury car market, Lexus has adopted a moderate strategy that shows composure. Compared with other luxury brands that have launched massive price reductions, Lexus has kept a relatively stable price, which is mainly attributed to its dealers' reasonable inventory.

At present, the average inventory of luxury car dealers is 0.7 months, but Lexus dealers have an inventory of 0.4 months. Besides, to prevent old models from stunting the sales of new ones, all stock of the old ES has been cleared out.

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