MUMBAI -- With Friday's launch in India, Toyota Motor's Lexus luxury brand challenges storied German names on new territory with environmentally friendly models.
The company will create a new wave in India, said an enthusiastic Yoshihiro Sawa, a managing officer overseeing Lexus operations, to reporters in New Delhi.
Lexus had already expanded to 90 or so markets since its 1989 birth. India has been one of the few remaining untapped markets with huge future potential for the brand. Japanese-made vehicles will be shipped to India.
The RX sport utility vehicle, one of the three models available here initially, sells for more than 10 million rupees ($152,900). This is significantly higher than the roughly 7 million yen ($63,168) in Japan, owing to such factors as tariffs.
Dominant German luxury brands Mercedes-Benz, BMW and Audi build vehicles locally to hold prices down. The Mercedes GLE, for instance, starts at around 6.2 million rupees.
Toyota was nevertheless drawn to India's growth potential. The South Asian country is the world's fifth-largest auto market and roughly on a par with Germany's. The luxury segment, at around 35,000 units a year, accounts for only 1% or so of the total. But volume could rise to as much as 100,000 in 2020, according to PricewaterhouseCoopers.
The target demographic is broadening from the traditional ranks of the wealthy, such as real estate and business magnates, to doctors and lawyers as well as 30- and 40-something entrepreneurs.
Individuals in India with at least $1 million in financial assets will increase to 280,000 in 2021, Credit Suisse predicts -- up 57% from 2016 to mark one of the sharpest rises in the world.
The rough climate and roads make ease of repair a key consideration for car buyers in India. Suzuki Motor has thrived as the leader by ensuring maintainability. Toyota will thus offer a solid network of service facilities to help cultivate the Lexus brand.
German competitors have only 50 to 70 bases each across India, against 300 or so under the Toyota brand. Toyota will offer repair and maintenance services by making use of Toyota locations in addition to Lexus dealerships. Repairs will be done faster than competing brands, and parts prices will be kept down, a dealership staffer said.
Environmental performance is another selling point. Demand for green vehicles has surged in India over the past year or two. While diesel offerings from European companies were popular before in the premium-vehicle segment, Toyota sees the tide as having shifted since Volkswagen's emissions scandal fueled skepticism about the technology and in light of severe air pollution in the Delhi metropolitan area.
Indian environmental regulations will tighten quickly and approach global standards by 2022, said Akito Tachibana, who heads a local joint business of Toyota. Lexus' lineup will focus on hybrids ahead of regulatory changes to cultivate demand from wealthy people willing to pay extra for green technology and fuel efficiency. India cannot overcome its challenges without hybrids, Tachibana added.
India's first four Lexus dealerships opened Friday in New Delhi, Gurgaon, Mumbai and Bengaluru. The one in Gurgaon is a featured tenant of a luxury hotel building. The customer can sit on a leather sofa and take in the classy ambience. Toyota intends to offer attentive Japanese-style service to buyers. In India, relatives often gather to celebrate when a car is delivered. Lexus dealership staffers may arrange a "surprise" party without telling the buyer.
It is premature to pursue volume or profitability, Tachibana said. For Lexus, cultivating the brand will be its main focus in India for some time to come. Akitoshi Takemura, senior vice president of the local unit, hinted at the possibility of local production, saying it will depend on sales trends.
Taking on Mercedes
While Lexus has fared well in Japan and the U.S., the brand has lacked a strong presence in greater Asia and Europe.
In Asia outside Japan, global luxury leader Mercedes-Benz sold more than four times as many vehicles as Lexus last year. Europe has an even wider gap, at 14 times.
In the four major Southeast Asian markets of Indonesia, Thailand, Malaysia and the Philippines, the German trio and Lexus account for around 2% of the auto market, or annual sales of 50,000 to 60,000 units, according to research company MarkLines.
In Malaysia, with income levels markedly higher than in the other three countries, the share is 4%. Sales totaled 23,000 units in 2016. Mercedes accounted for half and BMW 40%, with the rest split between Audi and Lexus.
Lexus sales rose 11% in seven key Southeast Asian markets last year, according to Toyota. But volume remained low at 7,300. This dynamic is a world apart from the mass market, where Japanese brands enjoy a combined market share of around 80% in Southeast Asia.
The luxury car market, whether in India or Southeast Asia, is driven by a relatively small number of wealthy consumers. Lexus is destined to confront German dominance in Asia and Europe before it can become a global brand in the premium segment.
Nikkei staff writers Yuji Kuronuma in New Delhi and Hiroshi Kotani in Bangkok contributed to this article.