Business Week magazine’s headline read, “Surprisingly Mixed Returns on Lexus.” They were referring to the slow start for the ES250. Our friend Chris Cedergren of JD Power and Associates announced, “It’s basically being proven that the Japanese will not be an instant success in the luxury-car market.”
It was true. The ES250 was not doing as well as we had hoped. The sales plan was to sell 1,500 a month and 6,000 through December 1989. We sold about 1,000 a month in September and October; we were already 1,000 sales behind our year-end target.
The car was not getting good press. Automobile magazine noted when talking about the added features on the car, “These features are needed because what lies beneath the gloss of the careful detailing is really only a Toyota Camry.” Warren Brown, auto writer for The Washington Post, was more direct, calling the ES250 “a marketing blunder.”
The Japan staff was pushing us hard because we had made such a big deal about needing a second car. Now we were expected to sell it. The ES250 was an important profit opportunity for the dealers who otherwise would have had to make profits by selling only one new car, the LS400. It would be another two years until the new ES300 would arrive to replace the 250. We had to make this car work.
The dealers were getting nervous as the inventories grew. One dealer in LA advertised “The First Lexus Sale” offering an 18% discount on the ES. This would be damaging to the luxury brand Lexus was trying to build. We needed to find a way to sell this car without discounting the price.
We had asked production for 80% leather interiors for the cars but were receiving only 20% leather. The dealers were reporting that customers wanted only leather interiors. Despite our request, the plant production plan for November was again set at 80% cloth interiors. Something was wrong, and production people were reluctant to explain why we couldn’t get leather seats. The Lexus Japan staff coordinator and I flew to Japan to meet with the plant production planning staff to find out what was wrong.
The ES250 was to have a leather-wrapped steering wheel, gearshift knob, and seats. We discovered that the leather steering wheels were being hand sewn. The supplier was working seven days a week but could only sew 400 to 500 steering wheels a month. The supplier was embarrassed. The plant was trying to protect the supplier until he could ramp up his production, so they kept producing the ES250s with cloth because we needed the cars. The solution was to drop the leather-wrapped steering wheel and gearshift knob from the car and use leather only on the seats. It would take another three months of production to allow the supplier to adjust, but it was too late for November production. In December, we would start receiving 80% leather for only the seats. We estimated we would have more than 6,000 undesirable cloth interior ES250s to sell.
Don Esmond, the national sales manager for Lexus, moved quickly and established a special lease program for the cloth-interior cars. It would take several months before we could work ourselves out of these cars, but the target of 16,000 sales for 1989 was now in serious doubt. At the present sales rate, it looked like the ES would fall 2,000 sales short. We would have to make up the shortfall with LS400 sales. The pressure was on. Hopefully November’s ES250 sales would show some improvement.
I decided to personally incentivize the Lexus organization to achieve the 16,000 sales. In a weak moment, I offered to sing a solo in the headquarters lobby if we made the sales objective. It was a spur-of-the-moment idea that would turn out to be one of the highest points of my professional business career—and one of the lowest.
“A good person is saved from trouble.” Proverbs 11:8 (MSG)
Auto companies are often characterized as only being concerned about profits and not the safety of their customers. I never found this to be true at Toyota. I was so impressed by Chief Engineer Suzuki’s commitment to safety on the LS400 that I asked the legal department to tell me the circumstances of the first fatality in an LS400.
(To be continued in “Triumph and Tragedy”)