Toyota has been localized for decades, why does Lexus insist on not localizing? Because there is really no need!

Recently, the industry has heard that Lexus will soon be localized, but then the previous drama was repeated. Lexus' official spokesperson once again announced: "We will consider the demand for localized production, but as of now, we have no specific plans."

News about Lexus' localization is reported every once in a while, but each time it ends with official denial. Why is it that every time the wind starts from the tip of the green duckweed, it turns into a bubble in the blink of an eye?

Domestic products are beautiful, but reality is cruel

It is generally believed that the reason why Lexus needs to be produced domestically is that it can reduce costs and have more competitive prices, which will help expand market share and catch up with or even challenge the three traditional luxury car giants BBA.

Lexus can indeed reduce costs after being produced domestically. Freight, tariffs, labor and even parts costs will be reduced. However, China's automobile import tariff has been reduced from 25% to 15% this year. Lexus already has considerable room for price reduction, and there is no need to seek localization in order to further reduce prices.

Unlike European cars exported to China and Japanese cars exported to the United States, China and Japan are neighboring countries separated by a narrow strip of water. Even if Lexus is produced domestically, the transportation cost will not drop significantly.

As for the idea that localization can increase market share, it is even less reliable for Lexus. Japanese luxury cars have been declining in China. Infiniti and Acura achieved localization in 2014 and 2016 respectively, but their sales rose briefly before falling into a quagmire again, and they did not achieve a reversal in market share.

With the lessons learned from Infiniti and Acura, I believe Lexus will only take a more cautious attitude towards localization.

Challenging BBA is not easy

Why Japanese luxury cars cannot sell as well as BBA is already an old topic.

Luxury cars are different from ordinary cars. Stable quality alone is not enough to win the market. What is more important is the long-standing brand image and consumer recognition. BBA has a profound historical heritage and accumulation in China, and its brand influence and penetration are almost unrivaled. For example, in fourth- and fifth-tier cities, some people may not know Lexus, but no one does not know BBA.

Moreover, BBA entered China much earlier than Japanese luxury cars. In 1995, Audi officially joined FAW-Volkswagen and began the process of localization. BMW and Mercedes-Benz began localization in 2003 and 2004 respectively. BBA has been operating in China for many years, and its brand recognition and market foundation are already very solid. The gap between first-tier luxury cars and second-tier luxury cars cannot be made up by localization alone.

Japanese luxury cars are a leap forward for mid- and low-end car brands, and consumers tend to associate luxury cars with related mid- and low-end cars. Even if their own quality is superior to BBA, it is easy to produce cheap associations in terms of brand recognition.

In addition, the core competitiveness that Lexus has always emphasized is not luxury, but stable quality control. Lexus officially stated that one of the reasons for not localizing is that it is worried that the quality of the products cannot be guaranteed after localization.

Critics said that BBA, with such a high status, is not afraid of quality problems getting out of control after localization, and the quality problems that Lexus is worried about are just excuses.

BBA has had some quality problems after localization, but this has not shaken BBA's position in the luxury car market. Why? Because BBA is still BBA and luxury car even if there are problems. Even if the car has problems, it still attracts attention when it is driven out.

If Lexus, which has a weak brand foundation, encounters serious problems, it will directly affect its sales and brand reputation. The brand advantage of BBA is not only reflected in the premium, but also in the market's high tolerance for these brands. If Lexus wants to emulate BBA in this regard, it needs to do more market branding work.

Not made in China, life is also very comfortable

Lexus's status as an imported car has not affected its sales. In 2016, Lexus' sales exceeded 100,000 units for the first time, and reached 132,900 units in 2017. From January to September this year, Lexus has sold 117,700 new cars, completing 73.5% of its annual sales target of 160,000 units, with overall good performance.

In 2017, Lexus' total sales volume was lower than that of Cadillac and Jaguar Land Rover, ranking third among second-tier luxury cars. In the first eight months of this year, Lexus' sales volume has exceeded that of Jaguar Land Rover by 16,000 units, ranking second among second-tier luxury cars.

Pure imports have actually become a competitive advantage for Lexus. In the eyes of many Chinese consumers who have not yet “demystified” the word “imported”, imported products still represent a guarantee of quality. For Lexus, instead of taking the risk of localization, it is better to keep the appetite of the Chinese market, maintain its own mystery, and continuously accumulate its own brand influence. After all, the goddess is the one who cannot be caught up.

There are also troubles after domestic production

If Lexus really wants to achieve localization, there are two issues that cannot be avoided.

The first is the quality issue that Toyota officials have always emphasized. Toyota's concern about quality problems after Lexus is produced in China is not just Japanese pretentiousness, but there will indeed be problems.

In recent years, China's automobile industry has made great progress, and related industrial supporting facilities have become more mature. Joint ventures and independent brands have also trained a large number of automobile industry workers in the fierce competition in recent years. If Lexus is localized, it will be produced on a small scale at first, considering Toyota's insistence on quality control. Whether it is mechanical design, production standards, or industrial workers, there should be no major problems.

However, after the joint venture, Toyota's control over the entire enterprise will inevitably weaken. The localized Lexus needs to gradually realize the localization of the supply chain, otherwise the cost reduction advantage cannot be brought into play. But it is hard to say how reliable the quality of local Chinese suppliers is. Considering the various nepotisms that often appear in the supply chain, Lexus's concerns about quality problems after localization are not groundless. The Ford Kuga horn fracture that caused a sensation on the domestic automobile forum was not caused by the quality control problems of the nepotism factory.

Lexus’ brand influence is weak, and if it does not strictly control quality, it will only end up losing the big picture.

Of course, the more important issue is profit.

Toyota is the world's most profitable automaker and is very concerned about its own profitability. The main reason why Lexus has not been localized is that it does not want to share profits with joint ventures. Toyota is naturally unwilling to split the money earned by one person into two halves. Sharing the profits after Lexus' localization will directly affect Toyota's overall profit margin.

After domestic production, if Lexus wants to maintain its original profit margin, it will have to save money on materials, workmanship, etc. In this way, Lexus's reputation and brand image will inevitably be affected, which will damage its long-term interests.

It will take some time for domestic production to develop, but 2022 may be a turning point

But this does not mean that Lexus has no motivation to localize its products.

Lexus imported into China needs to be settled in US dollars. As the US dollar continues to appreciate, Lexus' situation will become increasingly worse. The trade protection policy adopted by the Trump administration will also have an adverse impact on Lexus in the US market. This also forces Lexus to pay more attention to the Chinese market. The tariff has been reduced, and if the profit margin cannot be guaranteed after localization, it will still be a loss for Toyota.

The quality of Sino-Japanese relations has always been an important factor affecting the sales of Japanese cars. At this stage, Sino-Japanese relations are improving, which will reduce Toyota's concerns about producing Lexus in China. However, it is unknown whether Sino-Japanese relations can be guaranteed to be stable in the long run. The initial investment in localization is definitely not small, and Lexus has to consider the political risks of localization.

After 2022, the equity ratio restrictions in China's automobile industry will be fully lifted. Considering Lexus' gradually improving sales, Toyota will not rush to localize Lexus.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.