THE JAPANESE ARE POISED TO CHALLENGE THE TRADITIONAL MANUFACTURERS OF LUXURY CARS
THE JAPANESE ARE POISED TO CHALLENGE THE TRADITIONAL MANUFACTURERS OF LUXURY CARS
As the owner of a successful Toyota car dealership in Lachine, Que., Noel Spinelli is accustomed to following a hectic schedule. In fact,
Spinelli says that last November he was so busy that a friend recommended a tailor who would come to his office to measure him for a suit so that he would not have to leave his car dealership. He claims that that gave him the inspiration for selling the latest addition to his showroom—the $63,000 Lexus LS 400, the flagship of Toyota Canada Inc.’s new luxury-car division. Instead of waiting for customers to come to him, Spinelli makes office or house calls to prospective buyers, allowing them to testdrive the new car at their convenience. Spinelli says that the marketing technique has proven effective; even before last week’s official launch of the Lexus, he had six orders. Those sales are the latest sign that Japan’s automakers are poised to grab a healthy share of
Canada’s billion-dollar annual market for luxury cars.
The Japanese invasion has intensified competition in an already crowded field. Traditionally, the market for luxury cars in Canada has been shared by North American automakers—
manufacturers of the Cadillac and Lincoln lines, among others—and the high-priced European imports, including BMW, Mercedes-Benz and Porsche. In 1989, Canadians bought 45,000 luxury cars. Cadillac dominated the market segment, selling 8,300 automobiles, followed by Lincoln with 6,300 vehicles sold. European imports held the next three spots, with Volvo, BMW and Mercedes-Benz each selling about half Cadillac’s total. But the success of Japanese automakers in the lowto mid-priced car market has prompted auto industry analysts to predict that they will soon begin to dominate the field for high-priced vehicles, as well. Said Edward Sullivan, vice-president of automotive research with The WEFA Group, a Philadelphiabased consulting firm: “Japan’s competitors should be nervous. They are going to do very well.”
In addition to the LS 400, Toyota’s Lexus division last week launched the ES250, a
$32,000 entrant that the company hopes will attract first-time luxury-car buyers. Also last week, Nissan Automobile Co. (Canada) Ltd. began selling its new upscale line of cars, the $54,400 Q45 and the $26,000 G20, under the Infiniti brand name. And the Acura Division of Honda Canada Inc., which launched its Integra and Legend models in Canada in 1987, has just started delivery of its top-of-the-line NSX, a sleek, hand-built sports car. At $79,000, the NSX is the most expensive Japanese motor vehicle ever sold in Canada. As well, Acura will launch a new Legend on Nov. 12.
Still, Japan’s automakers will face formidable competition. Their entry into the luxury-car market comes at a time when the Canadian economy is slowing down, unemployment is rising, and retail sales are failing to keep pace with inflation. As part of that trend, the market for luxury automobiles—defined by industry analysts as cars that cost $30,000 or more—is getting smaller. In 1987, Canadians bought 55,000 cars in that price range. This year, industry spokesmen say that they expect to sell only 37,000.
The Japanese automakers, however, say that they can afford to ride out the current economic downturn. Supported by lavish advertising campaigns, elegantly appointed showrooms and extensive service warranties, their immediate goal is to establish a strong presence in the luxury field. To accomplish that, they will have to convince consumers that Japanese cars belong in the same
league as their high-class European and North American competitors.
It is not the first time that Japan’s automakers have set out to redefine the popular image of their vehicles. In the 1960s, many North American consumers viewed Japanese cars as inexpensive and reliable, but unsophisticated. By the late 1970s, however, the Japanese had conquered the market for small cars and had begun to produce larger vehicles, moving into a more expensive price bracket. Their efforts have clearly paid off. In September, for the third straight month, Toronto-based Honda Canada sold more cars than Windsor, Ont.based Chrysler Canada Ltd. Honda’s sales of 8,883 cars represented a 33-per-cent increase over the same month last year, while Chrysler’s sales dropped 33 per cent, to 7,727 cars. In doing so, Honda beat out Chrysler for the No. 3 position, behind General Motors of Canada Ltd. of Oshawa, Ont., and Ford Motor Co. of Canada Ltd., of Oakville, Ont.
Despite that, North American and European automakers plan to make it difficult for the newcomers. GM, for one, has launched a new $34,000 Buick Park Avenue Ultra. And GM’s Cadillac division includes the sporty, $74,000 Allanté, a U.S.-assembled two-seater car that features an aluminum body made in Turin, Italy. According to Robert Sowden, manager of market planning for Cadillac, the Allanté is part of a campaign to attract drivers under 50 who might otherwise consider buying only a European vehicle. “We have a psychological wall that we cannot get people to look over,” he acknowledged. “When they think of Cadillac, they think of an old guy with a cigar.” But Sowden insisted that GM’s cars are competitive with any other vehicles on the road. Said Sowden: “We recognize the Japanese as
formidable competitors, who are building a quality product, but we are also building a quality product. And we have certain structural advantages, such as 217 Cadillac dealers across Canada, compared with about 20 each for Lexus and Infiniti.”
Lexus and Infiniti have already made a strong impression in the United States, where they have been on sale for about a year. According to WEFA’s Sullivan, U.S. buyers purchased 26,517 LS 400s between January and September, compared with 8,571 Infiniti Q45 cars. Meanwhile, BMW sales fell about 12 per cent. In response, BMW recently counterattacked when it placed an advertisement in The Wall Street Journal stating that BMWs are the best-selling luxury import cars in Japan. The ad’s headline read, “When they make it big in Tokyo, whose car do you think they buy?”
In Canada, distributors of German cars say that their wider product range and established reputations will enable them to maintain their market share. For now, the Lexus and Infiniti divisions offer only two models each. By contrast, Toronto-based Mercedes-Benz Canada, Inc., has 18 cars in its 1991 lineup. They range
from the 190E 2.3 sports sedan, at $39,800, to the $128,000 500 SL two-seater sports car. Said Paul Halata, president of Mercedes-Benz Canada: “No other luxury maker offers as wide a range of choice.”
In addition to selection, European cars have the advantage of an established name and image. Toronto fashion designer Dominic Bellissimo, for one, said that he was attracted by the prestigious reputation of Mercedes-Benz. Two years ago, Bellissimo paid $80,000 for a navy 560 SL convertible with a tan leather interior. He added that he has no intention of trading it in soon and is not interested in
looking at the Japanese luxury cars. Said Bellissimo, 30: “Owning a Mercedes was a dream of mine.”
For his part, Victor Doolan, president of Whitby, Ont.-based BMW Canada Inc., said that he welcomed the new Japanese competition. “They will stimulate interest in the market,” said Doolan, “but that will also start people comparison shopping, which will be good for us.” At the same time, BMW is trying to attract younger, less wealthy buyers with the new 318is, which sells for $26,950. And Doolan added that the Japanese luxury cars still have only a tiny portion of the lucrative European
market. “To achieve significant success,” he says, “one has to be successful globally.”
For their part, spokesmen for the new Japanese car divisions say that they hope to benefit from the increasing number of prosperous, middle-aged car buyers. Frederick Bowyer, Infiniti’s general manager, said that, while the number of Canadians will increase by 10 per cent in the current decade, the 35to 55-yearold age group—which forms the core of the luxury-car market—will grow by 30 per cent. “These are people who grew up driving Japanese cars,” said Bowyer. “For them, it is a logical extension to move into a Japanese luxury car.” Lexus general manager Wayne Jefferey, meanwhile, said that members of the baby-boom generation have a different concept of luxury than their parents. “They buy less for prestige than for price and value,” he said. “Our major task is to meet those expectations.”
Clearly, the Japanese appear willing to go to great lengths to achieve success. Last December, Sullivan said, Lexus discovered a fault with the windshield wiper blades that had been installed on its U.S. vehicles. Rather than ordering a conventional recall, which might have harmed the company’s image, Lexus arranged to have replacement parts shipped by air from Japan. It then sent servicemen to fix the cars in owner’s driveways or while they were at work. Said Sullivan: “They said, ‘We promised service, and this is the way it is going to be.’ ”
Acura’s North American launch of its sporty NSX was equally ambitious. The company’s television commercials show a man speaking in Italian to his father, who assumes that the shiny red sports car in the background is a Ferrari. Acura plans to continue the campaign even though it has already sold 270 NSX cars and does not expect to receive an additional allotment from Japan until 1992. James Miller, Acura’s vice-president of sales, said that the company wanted to draw attention to the entire Acura line—an approach described by advertising experts as an “icon strategy.”
To attract customers, dealers of Infiniti and Lexus cars have invested heavily in new showrooms. Owner John Cox of Toronto’s Infiniti of Yorkville said that he spent $200,000 to meet the standards that Infiniti has set for its 16 Canadian dealers. All of them will feature leather chairs, silk-and-wool fabric wall coverings, mahogany mouldings and Italian ceramictile floors. Cox, who also sells Jaguar, Rolls Royce and Nissan cars, said that he thought that the Japanese car industry was coming of age. “With the Mercedes and BMW, we have the German version of luxury,” Cox said. “With Rolls Royce and Jaguar we have the English version of luxury. Now we have the Japanese version of total luxury.” Like the more than 70 other dealers who have begun to sell high-priced Japanese cars across Canada, Cox clearly believes that it is a version of luxury for which Canadians will be willing to pay handsomely.
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