Serving the World's Largest Emerging Automobile Market
Home > Commentary > Three challenges facing Lexus after Godfrey Tsang

Three challenges facing Lexus after Godfrey Tsang

by He Lun

Rarely the leave of a multinational auto executive in China would mark the end of an era.

The only exceptions may be Winfried Vahland, former president of Volkswagen China, Godfrey Tsang, Toyota China’s vice president in charge of the Lexus brand, and possibly Christoph Stark, president of BMW China, in the future.

Unlike Vahland and Stark, who are CEOs of two multinational China operations, Tsang held a deputy position. But he was a crucial executive to have started a new era by establishing the Lexus brand in China. Tsang’s achievements are therefore more sophisticated and harder to accomplish in terms of enterprise politics. His leave also suggests an uncertain future for the Toyota luxury brand.

Service and Quality

Service and quality are two key elements for Lexus’s success in China. As the quality issue is an irresolvable problem for Toyota under the shadow of a number of vehicle recalls, service is playing a much more important role for the Lexus brand. 

Few multinational top executives know their dealers better than Tsang, who came to the job as a dealer himself. Tsang understands well what dealer attitude towards consumers and the competition among dealers mean to a brand. He also best understands Lexus’s “four-win concept” from a dealer perspective to create a “four-win” deal for consumers, dealers, distributors and the carmaker.

Tsang planned and executed the process of dealer selection and service standards himself and elevated Lexus’s dealer service to the “Ritz-Carlton level.” Service excellence, being the sole advantage of Lexus, is also Tsang’s trump card in trying to beat German rivals and become the No. 1 luxury brand in China before his retirement in 2015. To prevent from the vicious cycle of over expansion, poor service, dealer competition, loss of consumers and erosion of brand value, Tsang was very cautious about dealer network expansion.

Tsang has no longer been involved in dealer network planning since July 2009. The Lexus brand has since been confronted with the issue of large engine displacements, repeated recalls globally, increasing competition within its expanding network of dealers and a slowed market in China. 

According to statistics released by the company, Lexus approved 70 new dealers from February 2005 to August 2009, or about 15.5 dealers per year. However, 33 new dealers were added in little more than a year since August 2009. Keeping the high service standard of Tsang’s time is now the biggest challenge for Lexus.

Brand building

Lexus’s second challenge is brand building. “Many Americans did not recognize that Lexus was a Toyota brand when it first arrived in the U.S. It was not necessary to emphasize Lexus’s Toyota breed or hide it,” said Yoshimi Inaba, vice president of Toyota several years ago.

Different from its approach in the States, Lexus has been promoted as a Toyota brand from the very beginning in China. Lexus does not have an independent marketing agency in China. All promotional activities such as new product launches, auto shows or press conferences have been conducted under the direct supervision of Toyota (China). Lexus has not been engaged in any social responsibility activity in China.

Lacking an independent brand image, Lexus is like a child of Toyota that never grew up. Besides its products and service, Lexus has not rooted itself in the minds of consumers with a deep brand connotation and value, which tell a premium brand apart from the ordinary.

The Volkswagen Group has been successful in establishing its high-end brand Audi by separating it as much as possible from the parent. Tsang has been aware of this issue, but as a deputy executive of Chinese descent working in a Japanese company, too much initiatives on brand building may have been comprehended as a struggle for power. Tsang’s resignation, however, may provide an opportunity for his Japanese successor Nakajima to refocus on Lexus brand building.

Localization

As a young luxury brand in China, it was wise for Lexus to keep its Toyota and “made in Japan” identity and promote high-end large-displacement models during its initial launch in China. Lexus has reached 50,000 units annual sales in China and successfully established its high-end luxury image.

With limited room for further growth in imports, Lexus’s next logical step of development seems to be local production. But such a decision would involve how to balance its relationship with its two JV partners in China, FAW and GAC-Toyota.

As it is impossible for Lexus to choose a third partner due to government regulations, localized production of the Lexus would be very difficult if not impossible.

Toyota announced to set up its largest R&D center in Changshu, Jiangsu Province at the end of 2010. With almost the same distance between FAW-Toyota in Tianjin and GAC-Toyota in Guangzhou, the Toyota R&D center has aroused much speculation.

There is reason to believe that Toyota Motor may set up a new Lexus plant on the basis of the R&D center in Changshu, with Toyota holding 33 percent stakes and each of its two Chinese JVs 33.5 percent. This would create a venture with Toyota holding 49 percent and the Chinese partners 51 percent or split 50:50 between Toyota and its two Chinese partners. Such a scheme not only complies with government regulations but also compromises any conflict between the two Chinese partners.

The deal, if successful, requires high political wisdom, good partner relationship, government lobbying as well as outstanding negotiation skills and patience. Toyota China’s recent appointment of Dong Changzheng as executive vice president in charge of business strategy says a lot about the Japanese automaker’s potential move in the future. It is the first time that a Japanese automaker places a local Chinese executive at its top management in China. Dong, former vice president of Beijing-Benz, has been known for his connection and good terms with different levels of the government. The localized production of the Lexus may very well be his major task in the new appointment.

Rewritten by Jennifer Chen based on author’s blog at blog.sina.com.cn

 

| | |

Leave a Reply