The End of Detroit (16 page)

The Camry that Toyota built at the Georgetown plant had been revamped in the fall of 1987, which gave American workers the opportunity to go to Japan and see how it was built before they came back to the United States to begin production in Kentucky in 1988. That in itself was a milestone, but as the Georgetown workers were building their first Camrys, Toyota was already setting out to achieve a breakthrough with the next generation of the Camry, which would be introduced in 1992. The car that was being built in Georgetown was the same as the one that Toyota built in Japan. The next-generation Camry would be vastly different for the American market, both in appearance and under the hood. It owed that, in part, to one of Toyota’s other achievements in the American car market: the Lexus luxury division.

As the Camry is to American family cars, so is Lexus to American luxury vehicles. Lexus has been the top-selling luxury brand in the United States for the past two years, surpassing Mercedes-Benz and BMW. If the Camry is vanilla ice cream, Lexus is a cashmere sweater. It is a recognizable symbol of luxury, but not an ostentatious one. It is expensive, but attainable. Lexus cars and SUVs start at around $30,000 and range up to about $70,000, certainly not cheap, but far below the prices of top-level Mercedes, BMW, Porsche or Audi cars. No one would call Lexus vehicles overwhelmingly stylish, yet they are pleasing to the eye and manage to remain contemporary-looking even when they are a few years old. For many American customers, Lexus is just enough luxury, particularly for consumers who have plenty of other ways to spend their money: on houses, antiques, travel, sports and entertainment. Lexus, like the Camry itself, perplexes Detroit. Compared with the classic luxury cars of Motor City history, the Cadillacs with their daunting fins and shining chrome, the Lincolns with their eye-catching opera windows and long hoods, or German performance cars with their guttural engines and stiff, road-hugging handling, Lexus seems practically anonymous. Moreover, there was no Japanese luxury tradition from which Lexus could draw as it came into being. It was created completely from scratch, the one trait that German auto companies to this day insist is Lexus’s greatest shortcoming.

But many of the people who own them would not have anything else. To them, the appeal of a Lexus is not only its understated appearance but its interior comfort, the smoothness of its engines, its sense of quiet, its easy handling, and above all, its quality, reliability and resale value. “It’s about discipline, consistency, attention to detail, and
really
listening to customers,” said Paul Higginbottom, an Atlanta executive who is part of a two-Lexus household. He owns a Lexus GS 400 sedan and his wife has an RX 300 sport wagon. Higginbottom said he could afford to buy any car on the market but was drawn to Lexus because of its overall reputation for quality. “There is a huge swath of people out there who have figured out there’s something better,” he said.

A key part of the Lexus ownership experience is the way dealers treat their customers. An owner taking a Lexus in for routine maintenance drives into a spotlessly clean reception area, used only for dropping off and picking up cars (the actual repair bays are out of sight). A signboard set next to the door welcomes each day’s customer by name, and a lab-coated service technician appears instantly to help the customer out of the car and take the keys. In the showroom, there is a coffee bar with cappuccino and croissants and a waiting room area with leather chairs, newspapers and a TV set tuned to the
Today
show or CNN, depending on the time of day. Customers may read, chat or use a separate booth where they can connect to the Internet. When maintenance is finished, the technician returns, like a doctor after surgery, to kneel next to the customer’s chair and explain what tasks were performed and to detail any repairs that were needed. The car appears back in the drop-off area, freshly washed and vacuumed. Customers who can’t wait for their vehicles are assigned free loaner cars, and if it’s impossible to get to the showroom, a salesperson drives to the owner’s home or office to pick up the car being serviced and to leave a loaner. This pampering is one reason why, for 12 years running, Lexus has been named the top franchise in annual customer satisfaction surveys by J.D. Power & Associates, both for the way customers are treated and the quality of their cars.

It is remarkable to think now of the important events that were occurring when Eiji Toyoda challenged his engineers to build “the finest car in the world.” In addition to dominating the Japanese car market, Toyota had just started building the Camry for the American market and was concluding talks with GM on the NUMMI venture, both of which would eventually lead directly to production in Georgetown. As with Camry, Toyoda thought a luxury car would meet the evolving needs of its customers in the United States. It was the logical place to concentrate. Japan had no luxury car market at the time. Luxury car buyers there turned almost exclusively to BMW and Mercedes models. It would be a real stretch for Toyota to try to break into the heavily parochial European luxury car market. “The people who have been buying our cars were moving up in life,” he said in an interview with
Fortune
magazine in 1989. “We wanted to meet their heightened needs.”

The challenge he posed was high, as well: Toyoda wanted a sedan that could achieve speeds of 150 mph in quiet, comfort and safety, while earning fuel economy that was good enough to escape the American tax on gas guzzlers, which was imposed on foreign luxury cars that earned less than 22.5 mpg. (Still in effect today, the tax is largely borne by the cars in BMW’s lineup.) The fact that Americans couldn’t legally drive that fast meant nothing, since he thought customers would like to be able to boast about the ability to do so. The task of developing the sedan, which was code-named F (for Flagship) One, fell to a chief engineer named Ichiro Suzuki.

Like the large-project leaders at Honda, chief engineers at Toyota had complete authority over their vehicle projects in a way that Detroit companies simply cannot match. Even though Big Three companies have streamlined their product development operations, they generally assign at least three different executives, from design, engineering and marketing, to each vehicle project. Suzuki had all that authority. “In the Toyota chief engineer system, you really have one mastermind,” said Dana Hargitt, executive project manager for the most recent version of the Camry, which was designed in large part at the Toyota Technical Center in Ann Arbor, Michigan. Hargitt, who joined Toyota in 1998 after 20 years at GM, said that a Toyota chief engineer “sees, feels and lives” his assignment. There is nowhere that a Toyota chief engineer can hide and no place to lay blame. “His true success or failure hinges on how the vehicle does in the marketplace,” said Hargitt.

Suzuki’s first task was to dispatch 20 Toyota designers to the United States, in the tradition called
genchi gembutsu
, or “go to the spot,” to gauge what American customers might demand. (Honda engineers followed this same method with the Odyssey.) The engineers found that Toyota would have no chance to attract the blue-hair and toupee crowd that was then buying Cadillacs and Lincolns. Nor would cash-rich yuppies, then at the height of their love affair with BMW, be interested in a vehicle whose status hadn’t yet been proven. The heart of the market would come from owners of Toyota vehicles, and others who would have liked to own the best German luxury cars but for either affordability reasons or fears of poor quality just wouldn’t buy them. The specific customer was a 43-year-old male earning $100,000 a year. (It would later turn out, however, that Lexus was equally attractive to women buyers. Some of the models in its lineup sell overwhelmingly to women, particularly the RX 300, which people within the industry dubbed “the ladies’ SUV.”) As they were visiting dealerships and buttonholing customers, Suzuki set out on his first priority: the engine. It was to be an all-new V-8, the first offered in a Japanese car, built on an aluminum engine block, with aluminum valve lifters—the first time an auto company had used aluminum instead of stamped steel. His initial try resulted in a failure. The engine wouldn’t achieve high enough fuel economy. So Suzuki tore it apart and started over. Eventually, he achieved the 22.5 mpg standard, and then came the matter of the car’s appearance.

Five of the designers remained in California, where Lexus expected to sell most of its cars, and rented a house in Laguna Beach, not too far from Toyota’s sales headquarters in Torrance. They crafted three scale models of what a luxury sedan could look like and took them back to Japan. Executives turned them down—and kept turning down design ideas for the next 18 months. One of the reasons was that Toyota faced a real challenge in designing a vehicle that looked expensive. It couldn’t copy Mercedes or BMW, yet it had to look enough like them to get buyers interested in paying a premium over a Toyota. There were plenty of complaints that the resulting car did look like a Mercedes E-Class of the day (before Mercedes switched to the distinct round headlights that are the car’s trademark now). But Toyota insisted that there were enough differences that they looked unique and would offer something different for the U.S. market. The most notable difference was the vehicle’s interior. Its dashboard was free of clutter, and its console, with polished wood and flawless leather, looked beautiful. Lexus’s simplicity was a refreshing contrast to American cars at the time, which were stuffed with digital readouts, complicated trip computers and voices that announced, “The door is ajar.” There would be no such gimmicks in the Toyota luxury sedan.

While this was going on, Toyota officials in the United States were in the dark. They did not get official word that the project was under way until 1987, four years after its birth. One reason was that Toyota didn’t want its existing dealers to clamor too soon for the car, nor did it want to award showrooms to them automatically. It wanted a separate network of dealers, who would be required to abide by strict customer service standards in order to get around the reputation Toyota dealers had—and in some cases still have—for being disdainful of potential customers. That is not to say that Toyota’s dealers are not a key part of its success. They play a critical role in the way the company learns about its customers. Information from dealers can get back to Toyota’s sales operations in Torrance, California, with speed. It means the company can spot problems with its vehicles much faster and can also tell which vehicles are selling best, allowing it to make adjustments quickly on its assembly lines.

Dealers also are a primary research tool for Toyota, letting the company know what customers are asking for. And they keep the company primed with a constant demand for vehicles, since more than half of Toyota buyers are repeat customers. “Our dealers are our Israeli fighter pilots,” said Denny Clements, Lexus’s general manager. Still, executives have fumed in frustration because of the difficulty some consumers have reported in getting Toyota dealers to pay attention to them. The rationale has always been that Toyotas sell themselves, meaning that salespeople don’t need to work as hard to explain their features, and that if a particular customer doesn’t buy a car, there will be one coming along soon who will. Such tactics are an Achilles’ heel for the company that it is constantly addressing.

Toyota didn’t want to risk such treatment for luxury car buyers as it was developing Lexus. Dealers would have to invest $3 million to $4 million in new luxury showrooms, apart from their existing Toyota operations, and they were going to have to treat customers better than they had ever treated them in the past. Toyota wanted its buyers to be cosseted and coaxed, not intimidated. Once dealers were in the luxury car project, Toyota’s American operation was clued in. Rather than assign it to one of its veteran executives, the company hired Jim Perkins, a GM executive, to take charge, and named Illingworth as his assistant.

From the moment he found out about the luxury car project, Illingworth was skeptical. “I didn’t know what it was,” said Illingworth, who was then the corporate manager of special projects. “I thought, ‘How can you build a franchise with one car?’” He voiced his misgivings to Yuki Togo, an effervescent Japanese executive who was in charge of Toyota’s U.S. sales operations. Togo, who knew about Eiji Toyoda’s dedication to the luxury car program, told Illingworth to set his reservations aside. “At no time are you ever to have any questions about whether this will be successful,” said Togo. He showed Illingworth the resignation letter he had written to Toyoda, which was tucked in his suit coat pocket. “He said he would resign at any minute if it failed,” Illingworth said. But he did not expect that to happen. “‘We will back you 100 percent,’” Illingworth said Togo told him. “And they did.”

There were still many hurdles to overcome, including the name. Nobody knew what to call the luxury sedan, and it didn’t make sense to give it a name beginning with C, like Camry or Corolla, because the idea was to make the new division distinct. In came Lippincott & Margolies, a New York consulting firm that had come up with corporate monikers like Allegis, the title of the short-lived arrangement of travel companies that included United Airlines. The firm recommended a series of ideas, including Verona, Calibre and Chaparel, as well as Lexus. That became the first choice, because it sounded a little bit like luxury and could be conveyed with a capital L logo. (Toyota executives chose it despite the fact that words beginning with an L are hard for the Japanese to pronounce.) But the choice turned into a fiasco that almost threatened to stall Lexus before its debut. In December 1988, as the division was about to unveil its first car at the Detroit Auto Show the following month, Toyota was sued by Mead Data Central, owner of the Lexis-Nexis data retrieval service. It obtained a court injunction and Toyota frantically searched for a replacement, selecting the name Luxor, which would have used the same capital L logo. But before it had to make the change, a judge threw out the suit, saying that the two companies were sufficiently different to keep customers from confusing the two entities. With that crisis over, another ensued: Perkins quit Toyota to return to GM, where he was named Chevrolet general manager. The task of launching the car would be up to Illingworth.