When Chairman E. Toyoda made the decision to allow the U.S. to sell Flagship 1 in a new luxury channel, there were no plans to develop additional products. Fourteen hundred of Toyota’s best engineers had been diverted to the Flagship 1 project. There was no “kosu,” human resources, to do the work on a second Flagship car for a separate sales channel to be sold only in the U.S.
Toyota Motor Sales, USA proposed a made-over Camry with new front -end styling, rear tail lamps, and new interior seats and door trim to offer as a near-luxury car in the new channel. The legal department, however, made a strong case that there was risk that Toyota dealers would seek litigation to stop the sale if it was too similar to the Toyota Camry. Japan countered that they believed the Lexus channel needed an all-new F3 (four-door sedan) and an all-new F2 (two-door coupe) to properly compete against the Germans in the luxury market and to sell beside with the Flagship 1.
TMS and TMC agreed, but there was one big problem. An all-new F3 sedan would not be ready for sale until January of 1991, and the F2 coupe would not be ready until 1992 at the earliest. This meant Lexus would launch in the fall of 1989 with only one car. The dealers would have to survive with only this one car to sell until 1991 with no service or parts business.
Our Lexus team had estimated we needed 100 dealers to sell 40,000 Lexus F1s in our first year but believed only 30 to 40 dealers would be willing to gamble the needed millions of dollars to open a dealership with only one new, untested, and unseen Japanese luxury car.
In April of 1987 I gathered our small Lexus team in the triangle room on the third floor of TMS headquarters. It was called the triangle room because the table in the room was shaped like a triangle so that as management sat around the table no one had a power position. The Japan Staff Lexus Coordinator read to us a communication from the North American department.
Japan was considering two choices.
Case A: Lexus would launch with an F3 four-door sedan with very little differentiation from a Camry. An estimated 80 dealers would be open at launch but with legal risks and luxury image significantly compromised. The all-new, Lexus-only F3 sedan would be dropped. This made sense as a short-term decision.
Case B: An all-new F3 would be developed but not available until early 1991. An estimated 30 dealers would open at launch with only one new car to sell and put the short-term success of the Lexus Division in serious jeopardy, but it did make sense as a long- term decision.
We were not offered a case C.
Japan’s North American department was strongly recommending case B. This was bad news! It was a clever trap sent by those who did not want the second channel. TMC wanted a decision. Did Toyota Motor Sales, USA still want to continue with our plan for a second channel?
We all knew how our bosses Yuki Togo, Bob McCurry, and Jim Perkins would answer. It was not lost on any of us the significance that they ask us for our decision first. This was gut-check time. Were we willing to launch with one car? I went around the room and asked each individual at the table if we were still a go or no go. Everyone was go. We voted yes and agreed with case B.
“How joyful are those who fear the Lord. They do not know fear of bad news.” Psalm 112:1,7 (NLT)
Now what? We could not launch with only one new car! TMS Product Planning had to scramble, searching other markets around the world for a Toyota sedan that was not a Camry but would meet our needs. We needed to develop and sell Japan on a case C. I’m not sure what the Lexus Japan Staff Coordinator and Yuki Togo did behind the scenes at night on the phones, but it must have been intense and must have involved Chairman Toyoda, as several weeks later we were headed back to the design dome in Japan.
(To be continued in “Case C: The ES250 Lives”)