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Toyota to start producing Lexus ES sedan in Kentucky

Bloomberg

Toyota Motor Corp. plans to build Lexus ES 350 sedans in Kentucky, the first U.S. production for its luxury brand, as CEO Akio Toyoda pushes to localize output in the automaker’s biggest markets.

Toyoda and Jim Lentz, Toyota’s North American chief, said Friday in New York that production of the ES, the top-selling Lexus model in the United States, will begin at its Georgetown, Kentucky, complex in 2015.

Toyota is investing $360 million (¥35.8 billion) to expand Georgetown’s production capacity by 50,000 units to more than 550,000 vehicles a year.

As the Lexus was founded in the U.S., “it is only fitting that we are bringing the production of luxury sedans for our U.S. customers back to where the brand was born,” Toyoda said in a statement.

The move is part of Toyota’s plan to “give regions greater autonomy to make the products their customers want and achieve sustainable growth globally,” he added.

The Lexus, a major source of profit for Toyota, in 2011 was dethroned by BMW and Daimler’s Mercedes-Benz as the luxury sales leader in the U.S. after 11 years as No. 1. Toyota is looking to revamp the Lexus by making its models more like performance cars and less like family cars as it competes with the two German automakers.

Toyota said Friday it will add 750 workers for the project. Kentucky said last week it would offer Toyota tax credits worth as much as $146.5 million (¥14.6 billion) to expand a manufacturing operation that’s already Toyota’s largest in North America.

Most ES sales are “in the U.S. — it’s not really a big seller in Japan,” said Koji Endo, an analyst with Advanced Research Japan in Tokyo, who estimates the Lexus brand currently contributes about 20 percent of Toyota’s global profit.

“Moving it there makes sense,” he said.

The ES shares underpinnings with the Camry and Avalon sedans now built in Georgetown. It will be just the second Lexus model to be assembled in North America, joining the Canadian-built RX sport utility vehicle.

“Toyota is effecting its long-term strategy of building where it sells,” said Matt Stover, an analyst with Guggenheim Securities in Boston, who rates the company a buy. “Toyota does not want its long-term profitability tied to the gyrations of the yen.”

Japan’s currency has weakened against the dollar and other major currencies since late 2012, after staying near a record high in recent years that eroded profit for exported models. So far this year, the yen’s value has fallen 13 percent against the dollar, the most of any major currency.

Toyota has revamped the Lexus GS, ES, LS and IS sedans in the past 18 months to help fuel global sales as demand rises for luxury models in China, Southeast Asia, Latin America and Russia. Increased sales for the brand, with its higher prices and profit margins than mass-market Toyota models, also help the company expand earnings as sales of cheaper cars increase, Endo said.

“Globally, the real volume increases are coming from India, China, Brazil, but with cars that sell for under $10,000 (¥990,000),” Endo said. “They have to have these higher margin products, and that’s the role of the Lexus.”

The Lexus probably won’t reclaim its No. 1 U.S. luxury ranking, which it held from 2000 through 2010, anytime soon.

Toyota has said it expects to sell at least 260,000 Lexus cars and trucks this year, up 6.5 percent from a year ago and the most since it sold about the same amount in 2008. Deliveries for the brand grew 16 percent in the first quarter to 56,740, but that pace still wasn’t enough to move it from third place in U.S. luxury sales.

BMW and Daimler project that this year they’ll exceed their 2012 totals of 281,460 and 274,134 units. Those figures exclude Daimler’s cargo vans and Smart cars and BMW’s Mini brand, all outside the luxury category.

The Georgetown plant, opened in 1988, is the main production site of Camry sedans, the best-selling U.S. car for the past 11 years. Toyota has invested $6 billion (¥600 billion) at the facility, which employs about 6,600 people, according to the company’s website.