New vehicles fuel excitement among Lexus dealers

Lexus dealer John Iacono can’t wait for the LC 500 to hit stores.

Iacono, who owns three Lexus dealerships in New York, had a chance to drive the two-door speedster that was unveiled in January during the Detroit auto show.

His praise for the rear-wheel-drive coupe almost sounds like a riddle. He said the LC 500 sounds, drives and feels like a Lexus — and not like a Lexus.

Iacono says the coupe, which will churn out 467 hp, will give enthusiasts a reason to stop at Lexus dealerships when it is goes on sale in 2017. The LC 500 will assume a flagship mantle for Lexus, a slot that Iacono says he’s excited to fill.

Another flagship is expected to take the form of the LF-FC fuel cell concept, which could come to life as the next LS. Iacono hopes to see that one in stores soon after the LC 500.

Iacono, 56, a Lexus National Dealer Advisory Council member who was chairman in 2014 and 2015, spoke with Staff Reporter Vince Bond Jr. about future product, sales reporting and his outlook for Lexus in 2016.

Q: How was 2015 for Lexus dealers?

A: 2015 was the culmination of a journey that we’ve taken since 2007. In 2007, Lexus was the No. 1 luxury brand. Then we had things like the financial crisis, the recalls that came our way, the tsunami and then restructuring and trying to pick up the pieces from all of those challenges. 2015, as I said, was the culmination of all those challenges. We had our best year [in] volume ever for Lexus.

In January 2015, an analyst said Lexus had a chance to catch up with BMW and Mercedes-Benz in about three years — and Lexus did it a couple of months later.

Our goal is never to try to challenge Mercedes and BMW when it comes to volume. It’s always been a philosophy where [you] build the right the cars, take care of the customer and you’ll sell vehicles. It so happened that we did it a lot sooner than what was expected by industry analysts.

What do you think about BMW claiming it won the U.S. luxury sales title when Lexus had more registrations?

The claim is one that tends to matter more to industry insiders than consumers. At Lexus, there is a simple philosophy we follow: You report the vehicle sold once the ultimate consumer takes delivery.

The reality is that the true indicator of how many vehicles are sold is not what a manufacturer reports, but how many have been registered.

We take pride in selling lots of cars and putting them into driveways of consumers, so they can experience what Lexus is all about not only [in] the product they bought but the experience we give as Lexus dealers. I think it’s unfortunate that a claim is made by a manufacturer that when compared to the true barometer, which are registrations, [the totals] don’t actually match up. In my heart, I know that Lexus has registered the most cars in the marketplace in 2015 when it comes to luxury.

Why don’t analysts focus more on registrations than on the sales that manufacturers report?

It’s just been how it is in the past. Maybe folks like yourself should encourage that analysts and whomever it is keeps score, should maybe look at this scorecard more so than what a manufacturer reports sold.

What should be the main focus for Lexus dealers in 2016?

I think the main focus for Lexus dealers, now that we’ve gotten to the volume levels that I think we can expect in the future, is to be concerned with how customers experience the ownership of their vehicle. We need to certainly make sure that we size up our business as Lexus dealers correctly to the increased volumes. [We also must] have the staffing correct as businesspeople — not to overstaff or understaff — so that we can continue to give what’s expected of a Lexus dealer when it comes to the experience that consumers have become so accustomed [to] getting.

Also, [we must] make sure that our facilities are what they need to be not only in size, but in amenities.

What are the major issues facing Lexus dealers?

The time that it’s going to take to receive the wonderful and exciting — and more importantly, aspirational — vehicles that were introduced [at the 2016 Detroit auto show] by Akio Toyoda. To maintain relevance in the upper-tier automotive luxury segment, every brand needs the flagship presence and it’s essential that we have the product that is asked for by consumers:

n The exciting LC 500 that is coming our way probably in less than a year from now.

n And the fuel cell [LF-FC concept] that was alongside the LC 500 shown in Detroit to be what will ultimately be the LS replacement.

It is what we so dearly want to see on our showroom floors as Lexus dealers. We have a year [to wait] for one, and then hopefully within a year from that vehicle coming to showrooms, we have our second one, which would be our four-door sedan.

“We’re getting everything that Lexus dealers were asking Lexus to bring to market. These vehicles are being received in just the ways that we were hoping. The buyers that are coming in are much younger than what traditionally would be a Lexus buyer.”Is Lexus doing enough to reach out to younger consumers?

What is your favorite design feature of the LC 500?

I’ve been very fortunate, because I sit on the product committee, to have been given the opportunity to drive the vehicle. Not only is it stunning in its appearance, but when you drive the vehicle, it’s a vehicle that sounds, drives and feels like a Lexus — and not like a Lexus.

The fit and finish, the quality of the vehicle, is all Lexus. The sound is more like that LFA that was built in very small quantities and was a huge success for Lexus in showing we could produce a vehicle that performs. Then, the performance of this vehicle is like no other Lexus that we’ve ever brought to market. It is a vehicle that will delight the automotive enthusiasts. The design, quality and the performance of this LC is what makes this car such a special vehicle. I can’t wait to have them.

What do Lexus dealers see with new-car margins?

The new-car margins in 2016 have gone back to where we expected them to be. In 2015, we experienced the results of getting two new products and the sell-down of the current-generation vehicles.

Specifically, we had the new ES. In order to make room for a new vehicle that comes in, you need to have increased incentives and dealers prepared to have a transaction price that will move the vehicles that you have in stock to make room for the new vehicles coming in. And to be within the expectations on why a consumer would buy a current-generation vehicle when a new one is maybe on your showroom floor alongside it, you need to discount the car in ways where maybe the margin gets squeezed more than you want it to.

The same thing happened as we approached the end of the year when we were making room for the new RX that came in January. Both ES and RX, the new models are in. The old ones were moved out, and the margins were squeezed because of just trying to keep the volume because we didn’t want to lose market share. So we stayed aggressive. The margins are back to where they need to be now that the new vehicles are here and the old ones have been totally sold out.

Will Lexus incentives increase to keep momentum or will they hold steady?

Lexus needs to stay very focused on having incentives that are market-based and based on what your competition is doing. In the last two or three years, we’ve done a great job of being spot on with incentives without hurting the product by having distressed marketing strategies. We’ve done the right thing by staying focused and staying competitive, but yet not doing what at times some manufacturers do that is borderline irresponsible.

You as dealers would want the most money given to you to move the most volume. But you don’t want to do it at the expense of the brand, and I think that we’ve found the fine line. I would say stay steady with what you’re doing. Do not change the game plan because it’s worked so well for us in the last three years, giving us the sales results we are all so proud of achieving.

What’s missing in Lexus’ lineup?

The two flagship cars: the LC 500 and the LS. The bad thing is we have to wait a year for one, and then maybe another year for the other. The good thing is that both of them are pretty much penciled as vehicles that are coming our way and confirmed that we are getting them. A third piece is a three-row SUV. If everything stays the way we’re hoping it will, [the SUV] will come our way in a couple of years. (Lexus confirmed during the New York auto show that it will release a three-row RX crossover in 2017 or 2018.)

Those were the issues we had when it came to product. I believe that we’ve done a good job of communicating from the retail to the manufacturer side what our needs were. I think everyone was in the same mindset that we needed both a flagship and a three-row SUV.

What should the price range of a three-row SUV be?

The three-row SUV has to stay in line with our current two-row RX and just a premium for the third row. I wouldn’t change the pricing philosophy of what we have. If Lexus continues to stay true to what they’ve been in the last 26 or 27 years, they’ll get it right by not trying to overprice the vehicle.

What were you proud to accomplish as head of the dealer council?

We should all be proud of ourselves. It’s not a one-member dealer council. It’s a collaboration of all members. We’ve all understood that, moving forward, we need to focus on being the best in the markets that we’re responsible to sell into. We’ve made many strides in that direction where both Lexus and Lexus dealers are not being pressured to sell cars regardless of where they sell them. We’re all, as businesspeople, looking at our own marketplaces and saying, “How can I, being the dealer in Brooklyn or in Queens or in Manhattan — based on luxury car registrations in my market — be a leader in that marketplace?”

As a council, we’re coming up with ways where we keep dealers focused on their own markets, and being market leaders in their segment and not worrying about what their neighboring Lexus dealers are selling. Everyone has their own skin in the game. Everyone has their own market they need to worry about and everyone should focus on being the No. 1 luxury [brand] in their own markets. I think we’ve made a lot of accomplishments in that mindset, and we continue to have that be a big focus because when you do the right thing in your market, everything else seems to work itself out.

How does 2016 shape up for Lexus dealers?

I think the industry says 2016 should be pretty much in line with ’15. Some say that it might be a little higher, some say a little lower, some say that it’s going to be flat. I’ll tell you it’s not a bad scenario regardless of which one of the three might come our way.

2015 was a great year, all-time high in its volume. We see consumers out there, so far [in the] first quarter, in quantities that put smiles on our faces. As long as we continue to do what we’ve done since inception, I think 2016 for Lexus dealers is going to be a great year. We’re very excited.

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