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Toyota readies U.S. production of Lexus ES by 2015

The Lexus ES350 is seen at the car's unveiling during the 2012 New York International Auto Show at the Javits Center in New York, April 4, 2
The Lexus ES350 is seen at the car's unveiling during the 2012 New York International Auto Show at the Javits Center in New York, April 4, 2

By Dhanya Skariachan

NEW YORK (Reuters) - Toyota Motor Corp <7203.T> plans to assemble the Lexus ES 350 sedan at its Kentucky plant in 2015, marking the first time the Japanese automaker has built a vehicle from its luxury lineup in the United States.

Toyota said on Friday it will invest $360 million at the Georgetown factory, which makes the Toyota Camry and other models. The move will create 750 new jobs and boost the plant's production capacity by 10 percent to 550,000 vehicles.

Expanding U.S. production fits in with Toyota's strategy to make cars in the markets where its customers live. The move also counters the effect of the strong yen, which has made exporting from Japan expensive.

"This decision is in line with two key goals," Toyota President Akio Toyoda said at a news conference in New York. "First, to serve our U.S. customers. And second, reduce the effect of the exchange rate on our customers."

The U.S. market is the world's largest for luxury vehicles. In an interview, Jim Lentz, head of Toyota's North American operations, predicted economic growth of about 2 percent, similar to 2012.

Toyota was offered $146.5 million worth of tax breaks from Kentucky to add production capacity at the Georgetown plant, a source previously said.

"If you look at Kentucky, it's our oldest plant," Lentz said, when asked if the ES could be made in any other Toyota plant in North America.

"We have the most experienced team members working in that plant," he said. "So I think it will be Kentucky. I don't see us fractionalizing Lexus in different plants."

DESIGN OVERHAUL

Toyoda declined to comment on about whether other models, including the Prius, could be built in the U.S. market.

"In the case of Prius, if I look at the sum of global demand and the sum of global supply, right now they are in sync," Lentz said. "There is really no compelling reason to build more capacity until we can forecast more demand."

Lexus launched the brand in the 1990s and was embraced by American "baby boomers", but the brand has been struggling to attract younger buyers.

As a result, Lexus is overhauling the design of its vehicles to compete with the likes of Hyundai Motor Co <005380.KS>. Since 2012, Lexus has been using a pinched-in-the-middle "spindle" grille on models, including the GS, ES and RX.

"Now as a part of our global expansion, we have to speak to a broader audience," said Mark Templin, executive vice president of Lexus. "And what better way to do that than to put a much stronger and sharper focus on design."

The ES sedan was the second most popular Lexus model in the United States last year after the RX sport utility vehicle. The ES accounted for 9.2 percent for entry-level U.S. luxury car sales in 2012, according to data from Kelley Blue Book.

The company does not sell the ES in Japan, but makes the model at a Kyushu plant in southern Japan. That plant will continue to build the ES and export it to other regions besides North America.

Toyota will start producing a new model in late 2014 in Kyushu, the automaker said in a statement, without specifying the model name.

In New York, Toyoda said it is moving production to avoid problems such as the supply disruptions it faced in March 2011 when an earthquake and tsunami hit Japan. Converting overseas profits back into the yen has pinched profits. The yen's decline since last year has not affected that strategy.

(Reporting by Dhanya Skariachan in New York and Yoko Kubota in Tokyo; Writing by Deepa Seetharaman in Detroit; Editing by Chris Reese and Andrew Hay)

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