Back in 1990 Harvard Business Review published a study that Toyota completed back in 1980 (Toyota released the study to HBR for publication). What Toyota did was do a large engineering study of who they perceived their foriegn competitors to be 15 years down the road. Toyota engineers bought Mercedes, BMW, Cadillac, Ford, and Chevrolet vehicles and tore them down. They measured parts and subjected parts to materials analysis to determine the quality of manufacture and material selection.
The results of their 3 year study was that, at the time of the study, Toyota already had a five fold lead in manufacturing and material quality over the second best manufacturer in their study - Mercedes. What Toyota was behind on was design and engineering quaility (coming up with good designs and engineering more elegant solutions).
The article didn't discuss what Toyota did to correct the design and engineering gap, but we know it already as Lexus.