Lexus RX faces volatile market

Lexus management in Australia is anxiously reviewing all its options for the latest model RX SUV when it goes on sale next year. It's not that there's anything wrong with it, but the new RX, previewed in simultaneous events here and in LA (more here), is arriving in the midst of a very uncertain market.

In fact, when the RX 350 hits showrooms around March of next year, it will be one of the first full model ranges to debut in Australia since the Dollar slipped from its high point of 98 cents (US) in July to its current level around 64 cents (US).

A subdued John Roca, Chief Executive for Lexus Australia, believes that there's a real balancing act involved in bringing the new RX to market. Priced too low and it may not be profitable if the landed cost rises further in the meantime. Priced too high and buyers won't bother looking at it.

Asked what would be a realistic target for the new RX, Roca said: "It's pretty hard to say... It changes almost on a weekly basis, at the moment".

"It's going to be somewhere -- combined [RX 350 and RX 450h sales] -- between the two and the 3000 mark."

The current vehicle has been something of a cash cow for the importer locally, accounting for "traditionally 40 to 43 per cent" of the marque's total sales since its introduction.

Lexus doesn't 'hedge', which makes the whole issue of establishing a retail price for the new RX somewhat fraught. The landed cost for the new model can change considerably with the value of the Aussie dollar against the Japanese Yen.

Production of Australian-spec cars begins next month and the factory and the local arm are yet to settle on a precise specification or price. Even in the best of times, there's usually some argy-bargy between the local office and the factory over what is a price fair to both parties, but in the current economic situation it's all the more imperative to get it right.

Lexus has been running out the current car ahead of the new model launch and has not been holding much stock back, so there's no opportunity to delay the shipment of the new models until the global economic situation stabilises.

For Lexus, the problem is exacerbated by customers' buying habits. Lexus reckons it's hard enough to talk owners out of their current cars and into newer models as is, without the added burden of negotiating a fair trade at the retail end in the current adverse circumstances.

The importer can't afford to 'de-spec' the new car to allow for the lower value of the Australian Dollar (now down around 64 Yen, versus roughly 100 Yen just a few months ago). New cars equipped to a lower level than the cars they replace will not provide a convincing argument for current RX owners to trade up to the new model.

But if Lexus retains and improves the standard equipment in the new car -- as the company will do -- the retail pricing has to rise accordingly, to provide a buffer, should the Dollar drop any further against the Yen -- and that's a possibility.

Add in constrained supply delaying delivery of the new cars and you have serious potential for buyers to look elsewhere. The supply is likely to be limited because the RX will be launched globally at the same time, and Lexus Australia will go to market with its cars around the same time as the US and Europe.

Lexus reckons it's the hybrid RX 450h that's most likely to be hard to secure for Australian buyers. With the introduction of the new range, Lexus hopes that the hybrid variant sales volumes will shoot up from the current level of 24 per cent to 48 per cent -- yet the hybrid is going to be harder to supply.

Local buyers are aware that a new RX is headed our way and the recent drop in sales of the current car strongly indicates that buyers are holding back until the new model arrives. When it does, they could be in for a shock.

"We could justify $5000 [extra per unit] easily -- with the spec of the car, in comparison with the current car," says Roca.

"I think if you're getting into anything over the $8-10,000 mark, then you'd have to consider [the ill effect it will have on sales].

Roca says that the higher retail figure is a real possibility in the current scheme of things.

Just to rub salt into the wound, the recent changes to the Luxury Car Tax won't do the RX 450h any favours either. The cheapest of the current RX model variants is priced over the $75,000 ceiling that applies to luxury cars using 7.0L/100km of fuel or less -- and the current RX 400h doesn't meet that criterion anyway.

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