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Sunday, November 4, 1990 - Page updated at 12:00 AM

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Lexus Is New Kid On The Dock -- Toyota Turns Recall Into Public- Relations Plus

At first, it sounded like a major marketing disaster in the making. Last December, only three months after the highly touted Lexus LS400 luxury sedan had been introduced in the U.S., Toyota announced the recall of all 8,000 cars it had sold at that point.

The news sent a shudder through Lexus' new North American dealership network. ``My first reaction was, `Oh, my God, here comes trouble,' '' said Ken Meade, owner of Lexus of Lakeside in suburban Detroit.

What happened next, however, might be called Zen and the Art of Automobile Maintenance. Toyota had taken its sweeping action on the basis of just two consumer complaints - one about a defective brake light, the other concerning a sticky cruise-control mechanism.

``The company didn't run and hide,'' Meade said.

Lexus owners did not even suffer the inconvenience of a trip to a dealership: Within a few weeks, their cars were picked up, repaired and returned to them. To serve 10 Lexus owners in Grand Rapids, 150 miles away, dealer Meade flew in technicians, rented garage space, fetched the cars, fixed them, washed them and sent them home.

``We saw it as an opportunity to cement our relationship with the customer right from the beginning,'' said Dave Illingworth, general manager of Lexus in the U.S., which picked up the undisclosed cost of the recall operation. That strategy paid off in spectacular fashion: From a cold start a year ago, Toyota's luxury division in July swept past Mercedes-Benz and BMW in the U.S. auto market.

Although Mercedes retook the lead in August, the Lexus performance sent shock waves through the global auto industry. BMW and Mercedes have seen their U.S. sales dip 29 percent and 19 percent, respectively, over the past three years at an estimated loss of $1 billion each in revenue.

Toyota's fast trip to the top came courtesy of just two models: the $38,000 LS400, a four-door sedan powered by the first Japanese V-8 engine to hit the U.S. market, and the $21,300 ES250, a smaller, six-cylinder sedan. The bulk of sales have come from the LS400, a model that Car and Driver magazine rated as better than both the $63,000 Mercedes 420SEL and the $55,000 BMW 735i in terms of ride, handling and performance.

Up against the industry's pedigreed names, Lexus has created almost instant brand loyalty, a feat unprecedented in the luxury-auto market. Charles Ruffner, a tax attorney in Miami, is a Lexus convert after owning four Mercedes-Benzes over the years. ``The Lexus is the best car I've ever had,'' said Ruffner, who describes the Mercedes as ``Teutonic and utilitarian, like driving a Jeep,'' and its dealers as ``arrogant.''

One of the biggest surprises for Ford and General Motors was that 35 percent of Lexus buyers traded in a luxury American car to make their new purchase, something no one, not even Toyota, expected to happen so quickly. While sales of Lincolns and Cadillacs have been strong this year, the quick loyalty switch is worrisome news for their makers.

``It's already a nightmare for European and American luxury carmakers,'' said John McElroy, editor-in-chief of the Detroit trade publication Automotive Industries. ``Right out of the box, Lexus made a car that was more technologically advanced than anything it competes with.''

The Lexus owes its allure to 300 technological innovations that add up to a remarkably quiet and smooth ride at speeds of up to 150 mph in the LS400. The Lexus' computerized engine-control system, for example, retards the engine's rpm just before a gear shift, which reduces the lurch common to automatic transmissions. The car bristles with luxuries: a steering column that adjusts automatically to different drivers, heated seats and an optional telephone mounted on the steering wheel.

The Japanese push into the luxury market began with Honda's introduction of the Acura Legend in 1986 in the European and U.S. markets, but the trend has accelerated markedly in the past year. Nissan introduced its Infiniti line of cars in the U.S., featuring the opulent V-8-powered Q45 and the smaller M30, and was to add a new car this fall.

The next marketplace ripe for Japan's ``luxmobiles'' is Europe. The Lexus went on sale in Switzerland and Britain earlier this year, and in 1991 will hit Germany, France, Italy, the Netherlands and Sweden. In an interview early this year, BMW chairman Eberhard von Kuenheim accused Toyota of ``dumping'' Lexus in the U.S. market at below-market prices, and declared, ``Europe is not willing to destroy its own industry'' by giving Japan free access. Toyota calls that charge ``groundless and meaningless,'' but spokesman Yoshiharu Tateishi said, says, ``We are fully aware of the trade friction, and our approach will be modest and prudent.''

For the Japanese, the venture into luxury cars is a long-term experiment that will determine the industry's direction in the 1990s. Lexus' success is the product of a lengthy exercise in product development, even by Japanese standards. Toyota spent six years and more than $1 billion developing the auto, and built 450 prototypes - three times the usual number - to get the product right. The firm spent two years just deciding on the type of leather interior to use.

One question that Toyota management might be pondering now is whether, with prices up at the pump because of the gulf crisis and consumers about to give more thought to automobile fuel efficiency, Lexus' gas-hungry V-8 (18 mpg in the city, 23 on the highway) soon may prove a sales liability. So far, that has not been a problem, and Lexus is preparing yet another challenge to the world's luxury carmakers: a $30,000 luxury coupe that will roll into dealerships next spring to compete with the Acura Legend, Cadillac Eldorado coupe and Lincoln Mark VII.

(Copyright 1990, Time Inc. Distributed by Los Angeles Times Syndicate.)

S.C. Gwynn covers the auto industry for Time magazine. Seiichi Kanise of Tokyo and Adam Zagorin of Brussels assisted in the reporting for this article.

Copyright (c) 1990 Seattle Times Company, All Rights Reserved.

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