Sub-$50K challenge for new Lexus UX

Lexus is months away from the local launch of its smallest SUV yet, the Lexus UX.

But the company has so far failed to lock in local prices for the new 'gateway model' with the factory – and what is known so far suggests the Lexus UX won't undercut the CT 200h hybrid hatch (priced from $40,900).

Nor should it, of course, but the CT 200h is already nearly as expensive at its starting price as the most affordable Audi Q2 (from $41,800), which is considered a direct rival to the Lexus UX.

During the global launch of the Lexus UX in Sweden this week, motoring.com.au spoke with Lexus Australia chief executive Scott Thompson about the pricing situation for the new SUV.

Asked whether it's reasonable to presume that the Lexus UX won't be undercutting CT, Thompson replied: “I think that's a fair assessment.”

“What we're doing from a pricing point of view is we're in negotiations [with the factory] right now. Key focus for us is to position our SUV range effectively, which means this car has to come in underneath NX – and has to be a comparable conversation in terms of spec and performance...

“So I can tell you it will come in under NX. How far underneath I can't speculate at this point in time, but spec versus value is a big part of our conversation right now. We will not be able to get [UX] under the CT.”

Asked whether the UX can be priced below $50,000 (the larger NX 300 currently starts from $54,800), Thompson laughed and replied: “I won't speculate...”

That wording suggests the pricing negotiations with the factory are far from locked in, yet Australia will be one of the first markets in the world where the new SUV goes on sale – towards the end of this year, around November or December.

Thompson hinted that foreign exchange rate movements are not a major concern, but negotiations are in new territory, with neither factory nor the Australian arm having previously priced an SUV packaged like the Lexus UX.

It's about finding the right specification for the F Sport and Sports Luxury models, for example, which are located in roughly the same market position on the branches of the Y-shaped model hierarchy (with entry-level UX 200 Luxury at entry level).

The premium payable for the UX 250h hybrid models is a “key topic of conversation”, according to Thompson, who acknowledges that at a lower starting price for smaller models like the UX a larger jump to a hybrid model can be self-defeating if it's perceived to be too expensive.

“We have to be able to sell the value proposition of hybrid vehicles; so what are the benefits, what are the opportunities that hybrid brings?”

While the Lexus UX promises a significant sales spike when it arrives here, With Thompson expecting the new SUV to take Lexus sales above 10,000 vehicles a year for the first time ever, but the UX does pose some hurdles to overcome in the market first.

One of those hurdles is the lack of Apple CarPlay, which will be available in the UX for other markets from launch.

“I'd love to give you a big quote...” says Thompson. “At this stage we're going through validation testing and it's projected in the near future that it will be coming to Australia.”

Despite what might be seen as a significant disadvantage in a vehicle targeting younger buyers, the Lexus UX is still expected to sell up a storm, Thompson says.

When pointed out to him that Lexus sold 8800 vehicles in 2017 and only needs to sell 1200 of the UX to break the 10,000-sale barrier in 2019 – 100 units a month for its first full year on sale – Thompson was not fazed.

“We will be selling more than that,” he replied. “What I can tell you is that we are still in the negotiation phase right now, so we’ve identified a 70:30 split between petrol and hybrid... so now it’s around volume conversations with our parent company...

“It [the UX] will definitely take us out of the 10,000 mark; this car launch will be as important if not more important to us that when the NX launched.”

The sales split of 70:30 petrol to hybrid is based on past experience with other Lexus models, Thompson says.

“We've used that ratio because that’s our basic trend at the moment on all our entire portfolio right now. I believe that this car, based on its performance may even give us a higher opportunity in the hybrid.

“Australia, based on all of our research, all of our study... there is a bigger opportunity there. So we've got to make sure we communicate effectively to the younger buyer that we believe is more open to that type of car.

“I can't speculate on the rest of the market; what I can tell you is that the acceptance of hybrid for Lexus [in Australia] is very good. Amongst the world right now – the global sales of Lexus – we're one of the highest, in terms of our overall volume of hybrids...

“We're very happy; we believe there's more opportunity there, so we're going to continue to educate the market... continue to talk about the benefits of it.

“Once they start to the test-drive this gateway product for us, we believe it's going to bring a whole new range of people to our brand, and to experience the hybrid drive.”

Those buyers will be a mix, skewed towards younger urban professionals, but including empty-nesters, for whom a relatively practical package (hip point, turning circle, fuel consumption) and the Lexus badge count for a lot.

“We've got two core groups,” says Thompson, “step-up buyers, who we believe will be younger buyers. So between 35 and 39 – and then... basically downsizers we believe will be over 50s.

“So there’s two core groups; most of our activities and marketing will be around the younger demographic in terms of bringing new people into our franchise.

“We’re hoping to try and hit that 75 per cent of all of our buyers, whether they are becoming downsizers or step-ups that are new to our brand.”

The so-called 'step-up' buyers will be conquested from other brands, but as the label indicates, not specifically prestige brands.

“Mass market... definitely,” Thompson confirmed.

“We haven’t really identified by brand or by car line just yet, but in terms of the trend in the market... We look at the segment itself and we look at who’s buying into it.

Is there a danger of conquering sales from Toyota, particularly buyers who may have been considering the C-HR, for example?

“I’m the CEO of Lexus so my focus is on Lexus,” Thompson flippantly responded with a grin.