Lexus’ math triumph
Double-ENTRY bookkeeping was invented by the Italian Renaissance mathematician Luca Pacioli. Wow. Now there’s a fascinating first sentence.
Fans of the “Da Vinci Code” might remember Pacioli as collaborator and friend of Leonardo, as it was Pacioli who coined the phrase “divine proportion,” referring to the transcendent ratio that recurs in Fibonacci sequences, which play a role in the book’s mystery, which so totally rips off Umberto Eco I can’t stand it.
But I digress.
The point is, double-entry bookkeeping, the bedrock of modern accounting, is a Western European invention, and I’m beginning to think Japanese companies look at the books in a fundamentally different way from Americans and Europeans. Case in point: the new Lexus RX 400h, a luxury SUV with a powerful, efficient and mightily complicated gas-electric hybrid system that must have been obscenely expensive to develop and deploy.
Simply put: Is Toyota (Lexus is the company’s premium brand) selling this vehicle at a loss, that is, at less than what it costs to build? When it reaches the market in mid-April, the RX 400h will sell for $4,000 to $5,000 more than a comparably equipped RX 330 upon which it is based; figure around $50,000. As far as I can tell -- and I’m happy to be educated on this point -- that price premium doesn’t even cover the cost of the hybrid’s 288-volt nickel-metal hydride battery packs, never mind the vehicle’s -- count ‘em -- three high-efficiency motor/generators, inverters, converters, controllers and assorted gear sets worthy of the innards of a Patek Philippe.
Ask the Lexus execs and they give the punch line of an old joke: How do we do it? Volume! In fact, according to Mark Templin, Lexus’ vice president of marketing, the company has already pre-sold 12,000 of the RX 400h vehicles -- almost half the annual allotment headed for the U.S. in the first year -- and the company is trying to figure out how to squeeze more production out of the plant in Kyushu, Japan. Meanwhile, Toyota manufacturing can’t meet demand for the Prius hybrid, which has become Tinseltown’s talisman of green mojo.
Engineers from rival Japanese car companies have assured me, in alcohol-lubricated fits of competitive anguish, that there is no way -- No way! -- Toyota could be selling the Prius for a profit, and it stands to reason that goes double, or triple, for the RX 400h, which uses a more elaborate version of Toyota’s Hybrid Synergy Drive. For starters, the RX 400h is an all-wheel-drive vehicle, requiring a 68-horsepower motor in the rear that, with the help of a 6.8:1 reduction gear set, imparts a juicy 650 pound-feet of torque to the rear wheels, enough to get the lux-ute from 0 to 60 mph in 7.3 seconds.
This wouldn’t be the first time that Lexus has been accused of dumping. When the original LS 400 came out in 1989 with a sales price of around $35,000, most observers regarded it as a loss-leader priced to establish the brand’s place in the market. Mission accomplished: Lexus is the bestselling luxury nameplate in the United States.
But is this dumping or simply a more finessed form of accounting?
At the National Auto Dealers Assn. convention in New Orleans this month, Nissan Chief Executive Carlos Ghosn (demonstrably not Japanese) said hybrids were a bad deal for his company because they were too expensive to build. This is an elementary view of double-entry bookkeeping -- all on one page -- where it makes no sense to lose money on your product.
However, General Motors Vice Chairman Robert Lutz has a subtler view of things. Last month he said he thought GM had “missed the boat” on hybrids: “We should have said, ‘We’ll lose $100 million a year on hybrids, but we’ll take our advertising budget of $3 billion, make it $2.9 billion and treat it as an advertising expense,’ ” according to the trade journal Automotive News.
Once one gets past the galling revelation that GM spends $3 billion on advertising and Lutz’s cynical dismissal of hybrid technology as mere marketing, his comments seem sensible. In fact, Toyota-Lexus has enjoyed a warm, green-gooey love fest of PR because of its hybrid program, even though these vehicles represent only about 0.01% of Toyota’s 7.5-million yearly production (and some of those are gas-bonging uber-utes like the Lexus LX470). Toyota may well be spreading out the program costs over many years and many different divisions’ budgets, because it has the liquidity to do so.
However, in 2005, Toyota will build more than 100,000 Priuses and a combined 60,000 of the Lexus RX 400h and Toyota Highlander hybrids (by contrast, GM will build 2,500 hybrid pickups this year). Next year, the Lexus GS sedan will get a hybrid powertrain, and very soon after that every one of the luxury division’s products will be available as a hybrid variant, with the “h” superscript indicating a low-volume, high-performance line, like BMW’s M and Mercedes’ AMG.
Where there is volume, there is profit. Where there is exclusivity, there is cachet. And with every step, the company gains experience and equity in hybrid technology that -- inevitably, in my view -- many other manufacturers will have to pay for in licensing fees.
Consumers needn’t fret about Toyota’s schemes of amortization. What matters is that the RX 400h works beautifully, just like the regular RX 330, only quicker (a half-second sooner to 60 mph than the RX 330) and with 33% better overall fuel economy (28 miles per gallon) and a whopping 67% better mileage in the city (30 mpg, according to the EPA).
How does it work? Oh, you had to ask. The powertrain starts with the RX 330’s 3.3-liter V6 engine, slightly detuned for the application to 208 horsepower. Because all the accessories -- air-conditioning, power steering, water pump -- are electrically driven, there are no belts on the engine.
Like other hybrids, the RX 400h employs a small, integrated motor/generator as a starter when the internal-combustion engine is required; unique to the RX 400h, this motor also controls the rotational speeds of the output shaft by varying the speeds of a planetary gear set connecting the gas engine and the primary traction electric motor (167 hp). This double gear set acts as a continuously variable transmission and it is purely some of the coolest machinery porn I’ve ever seen.
As mentioned, the rear wheels have their own 68-hp motor. All three motors act as generators during regenerative braking and coasting cycles. The electrons get chased back to a set of three Ni-MH battery packs (45 kilowatt total) under the rear seat. A step-up converter raises the battery output to 650 volts, and an inverter flips the current to alternating current (all three motors are permanent-magnet AC motors).
The driving experience is virtually identical to a conventional vehicle. There is a start/stop button instead of an ignition key-lock. If the vehicle is warmed up, the internal combustion engine stays off but a “Ready” indicator will pop up in the regen/assist instrument. As you drive along, it’s nearly impossible to detect, through the seat of your pants, how all the parts are working together to provide propulsion.
At stop-and-go commuting speeds, the vehicle glides along under electric sails. The electrically controlled brakes do have a strange lumpiness to them in the first quarter stroke, though, causing the vehicle to hitch up abruptly as you attempt to come to a smooth stop.
On the open road, the RX 400h has plenty of moxie. Because all the outputs are thoroughly massaged by computer, when you put your foot down nothing dramatic happens -- no gut-knotting windup of the motor and no open-asphalt lunge -- it just gains speed like the Eurostar pulling out of Waterloo. The vehicle handles heavy, however: The steering is stiff and deliberate, and the car feels a lot heavier than its 4,365 pounds.
Overall, though, the RX 400h feels like a masterpiece of both engineering and accounting. Will Toyota make its money back on this generation of hybrids? Only the board members know for sure. But it seems clear that for Toyota, accounting is a form of martial art, like judo: It’s all about leverage.
Automotive critic Dan Neil
can be reached at dan.neil@latimes.com.
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(BEGIN TEXT OF INFOBOX)
2006 Lexus RX 400h
Price, as tested: $50,000 (approx.)
Powertrain: Series/parallel hybrid system with gas engine and electric motors: 3.3-liter DOHC V6 with variable-valve timing (208 hp at 5,600 rpm); starter motor-generator/transmission ratio controller (continuously variable transmission); AC-current permanent magnet traction motor (167 hp at 4,500 rpm); auxiliary rear motor (68 hp at 4,610-5,150 rpm); all-wheel drive.
Hybrid battery pack: 288-volt, sealed nickel metal hydride (Ni-MH) cells; 45 kilowatts; recyclable
Horsepower: 268 hp
Curb weight: 4,365 pounds
Maximum towing capacity: 3,500 pounds
0-60 mph: 7.3 seconds
Wheelbase: 106.9 inches
Overall length: 187.2 inches
EPA fuel economy: 30 miles per gallon city, 26 highway
Final thoughts: Cooking the books
