Chapter 9. Toyota's Resource Base

By the time the Lexus LS400 debuted in 1989, Toyota had sunk $1 billion in the project over six years—three times more and two years longer than what it normally invested to develop a new car at the time.[] This prompted the LS400 Chief Engineer, Ichiro Suzuki, to remark, "Certainly, we spent a lot of money, but we believed that it was critical for our new luxury car franchise to succeed with this car. If this car failed, I thought Toyota would have to abandon entry into the U.S. luxury car market for some time."[]

The Lexus was not just a new car, but a new brand for Toyota with a new franchise based on an entirely new business model. To give it a running start, Toyota developed a proprietary satellite communications system linking all the dealers in a network to exchange information on daily sales, car and parts inventories, and service requests. This innovation allowed the Lexus dealers to operate with car inventory levels that were about 3 times smaller than rival dealers of American or European cars, minimizing the impact of fluctuating sales to operate more profitably. The system was not cheap—Toyota spent $4 million to set it up and each dealer had to invest $170,000 to connect to it.[]

Was launching the Lexus a risky proposition? Most certainly, it was. This was not a standard model upgrade where success depends on a fast response to market changes. It was the strategic launch of a completely new car into a new market segment—one of the ...

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