Forbes Magazine Article On Lexus

[CUMan]

The June 21, 2004, issue of Forbes Magazine had a very interesting article about Lexus and its dealerships. I will list a few excerpts which I found interesting.

"In the past two years Lexus has persuaded its 207 U.S. dealers to spend $750 million of their own money upgrading their stores."

"Sales are up 21% through April, while Cadillac's have grown 5%, BMW's are up 2% and Mercedes-Benz's have shrunk 3%. In 2003 Lexus, a division of Toyota, sold 260,000 vehicles in the U.S., 19,000 ahead of number two BMW."

"Far more than other car manufacturers, Lexus manipulates its business to accommodate dealers. For instance, Lexus keeps the number of dealerships at a minimum, so dealers sell more vehicles per store than any brand but Toyota."

A chart in the article lists the annual sales per dealer, the average selling price, and the average dealership new-car sales for 13 different makes. Lexus dealerships had annual sales per dealer of 1,280; $42.5 thousand average selling price; and $54.4 million average dealership new-car sales. Second place Mercedes-Benz had annual sales per dealer of 680; $52.4 thousand average selling price; and $35.6 million average dealership new-car sales. Toyota, the only brand whose annual sales per dealer was higher than Lexus, had 1,323 annual sales per dealer; $23.0 thousand average selling price; and $30.5 million average dealership new-car sales.

"Lexus dealers average a gross profit of $3,500 per vehicle - higher than that of any other mass-market luxury brand, according to Sheldon Sandler, managing partner of Bel Air Partners, a Skillman, N.J. investment firm that brokers sales of auto dealerships. That's an average of $4.5 million in gross profit from new car sales. Now add the revenue from service, parts, financing, insurance and used cars. 'It's a license to print money,' Sandler says. 'When you and I die, we should hope to come back as Lexus dealers.'"

"Lexus dealerships are in fact the most valuable in autoland, according to Sandler. Lexus dealers sell for six times earnings before interest, depreciation and taxes - in a good market, $25 million to $30 million. Other brands of dealerships sell for between two and five times Ebitda."

"They (Lexus dealerships) attract the best salesmen who, with the normal 25% cut of the gross profit, can pocket $800 per sale instead of the $400 they might get with a typical brand."