BERLIN (Bloomberg) -- Lexus is poised to lose its lead in the U.S. for the first time in more than a decade, with BMW and Mercedes-Benz snaring customers just as the Toyota Motor Corp. luxury brand struggles to recover from the Japanese earthquake.Lexus has trailed BMW AG and Daimler AG's Mercedes for four straight months after clinging to last year's lead by 9,216 cars. The drop for Lexus, which makes all but one model in Japan, has intensified since the earthquake disrupted supplies, temporarily reducing production by 50 percent.
BMW and Daimler are adding models in the U.S., increasing local production and offering higher incentives than Lexus to boost sales and hedge against overexposure to booming demand in China. The earthquake has added to Lexus's woes after record recalls last year tainted its image.
BMW's U.S. deliveries through April rose to 71,417 vehicles, leading Mercedes' 71,388 and Lexus's 64,932.
"The house was on fire at Lexus before the earthquake hit," said Eric Noble, president of The Car Lab, an industry research company in California. "If the current situation wakes them up to that, then some good may come from it."
BMW, the world's largest luxury-car maker, aims to grab market share this year backed by the overhauled X3 SUV, which is 3 inches longer and 1 inch wider to appeal more to U.S. drivers.
The company has a four-month order backlog, forcing some customers to wait as long as half a year for the $36,750 SUV, CEO Norbert Reithofer said May 4.
BMW expansion
The manufacturer moved X3 assembly to the U.S. from Austria last year as part of a $750 million expansion of its factory in South Carolina aimed at better capitalizing on the U.S. market.
The maker of BMW, Mini, and Roll-Royce cars is considering adding another model at the plant, which also makes the X5 and X6 SUVs.
"We are really working all out," Reithofer said. BMW's U.S. factory boosted capacity by 20,000 vehicles to 260,000 to meet the higher SUV demand.
Mercedes, the world's second-biggest luxury-car seller, may be best positioned to overtake Lexus, thanks to the updated C- Class, presented in Detroit in January, its best-selling model.
The company, which advertised at the Super Bowl for the first time this year, is spending $290 million to upgrade its factory in Alabama, where it will start building a revamped M- Class SUV later in 2011. Mercedes already rolled out overhauled versions of the CLS coupe and SLK roadster this year.
Top battle
Mercedes will likely sell 254,100 cars and SUVs in 2011, edging out BMW's 250,400 deliveries, for first place in the U.S. sales race, according to forecaster IHS. Lexus is projected to drop to third with sales of 192,900 vehicles.
"Lexus is in a sort of lull in their product cadence," said Bill Visnic, an analyst with Santa Monica, California-based auto website Edmunds.com. The $46,100 Lexus GS sedan, which competes with the BMW 5-Series and Mercedes E-Class, "is aging and doesn't hold a candle to what BMW and Mercedes are doing."
Lexus generally earns less per vehicle than BMW and Mercedes, with the company's cars and sport-utility vehicles selling for an average of $42,485, according to Edmunds.com.
That compares with $48,179 on average for BMWs and $52,695 for Mercedes-Benz, based on Edmunds data, as both brands have a broader line of sedans with V-8 or larger engines. The average new vehicle in the U.S. costs $27,476.
The higher average selling price give German luxury marques more room to provide greater incentives. Mercedes currently spends an average of $3,625 on deals such as cheap leases and generous trade-in terms, followed closely by BMW's $3,275, while Lexus spent just $1,879, according to research firm Autodata Corp.
Losing ground
Lexus began losing more ground last year in the U.S., the world's largest market for luxury cars, against German rivals as Toyota recalled more than 10 million vehicles globally for problems related to accelerator pedal interference, including Lexus models. The Toyota unit, which has beaten BMW and Mercedes in the U.S. since 2000, saw its lead over BMW last year slump 52 percent to 9,216 vehicles.
The recalls led to a "softening" in luxury buyers' interest in Lexus, said Alexander Edwards, president of Strategic Vision, a San Diego-based consumer research company that surveys 300,000 people a year for its automotive studies.
"For people who were sitting on the fence about Lexus, we saw them remove the brand from the shopping list," Edwards said.
Lexus, created by Toyota in 1989 to win over U.S. luxury auto buyers, held test drives of its inaugural model, the LS sedan, in Cologne, Germany, in May 1989 to emphasize its goal of competing directly with the European brands that dominated the luxury segment.
U.S. lead
The brand achieved its target in the U.S., combining cars famed for reliability and dealers that provided a level of service customers were unaccustomed to. In 2000, 11 years after its creation, Lexus surpassed its German rivals to become the top-selling U.S. luxury marque, a position it held until the end of last year.
The U.S. market is particularly important for Lexus because the brand has struggled to catch on elsewhere. The carmaker's market share in Europe thus far in 2011 is 0.2 percent. In China, Lexus sold just 49,000 cars last year, trailing market leader Audi's sales of 236,000 vehicles. Volkswagen AG's Audi, Mercedes and BMW all delivered more than 1 million cars last year globally. Lexus sold 410,000.
Lexus isn't sitting still. The company aims to boost its appeal with designs that are "more passionate," Mark Templin, the brand's U.S. chief, said April 18 in New York.
Loyal drivers
Working in Lexus's favor is a loyal following of drivers won over by the company's customer service, the first to include amenities such as cappuccino machines in dealer showrooms, complimentary loaner cars, home visits by salesmen, and airport shuttles for busy executives dropping off cars for service.
"There are going to be customers who will wait for Lexus models to become available," said Jim Hall, principal of 2953 Analytics, a consulting firm in suburban Detroit. Whether Lexus can then win back wayward drivers "depends on how well BMW and Mercedes take care of them. They're going to have to work for it. 2012 is probably going to be a dogfight."
Mercedes and BMW are aiming to keep the customers they gain. The two are improving their Manhattan showrooms, with Mercedes opening a new dealership this month on 11th Avenue with soaring ceilings and changing light colors. Three blocks away, on 57th Street, BMW is spending money at its dealership to free up floor space and renovate the facade.
Audi surge
Closing on all three leaders is Audi, which will add further pressure on Lexus's GS when the new A6 sedan goes on sale this summer. The VW unit, already the leader in Europe and China, is counting on further U.S. growth to help achieve a goal of leapfrogging BMW and Mercedes-Benz to become the world's top premium seller by 2015.
Audi projects double-digit growth in U.S. deliveries in 2011 after selling more than 100,000 cars and SUVs last year for the first time. In addition to the A6, Audi will start selling the A7 coupe and the TT RS sports-car in the U.S. this year.
"The most interesting change hasn't been with those three, but with Audi," Edwards with Strategic Vision said. "Audi has seen very strong movement forward, capturing some aspirational interest among Gen-Y buyers, the younger consumer group that everyone wants to attract."
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