Lexus starts producing ES sedan in Japan despite Yen risks

Article by Anita Panait, on July 6, 2012

Toyota Motor Corp. has started building its revamped Lexus ES sedan in Japan, taking on the challenge of running more costly factories at its home country to cope with demand in the United States and China. Toyota is aiming to achieve an annual production figure of around 3 million vehicles in Japan, which is almost triple the amount that its local rivals Nissan Motor Corp. and Honda Motor Co. produce.

It also represents around 40 percent of the cars and trucks that Toyota builds globally. The only Lexus model that Toyota produces outside Japan is the Lexus RX sport-utility vehicle, which is being built in Ontario, Canada.

Japanese car manufacturers are usually averse to producing at its home turf in order to prevent the strong yen to continue eating up their profits on imports. Toyota’s strategy with Lexus leaves the brand exposed to the effects of the strong yen.

Toyota officials, however, are confident that the made-in-Japan strategy would pay off even at current yen levels. Kazuo Ohara, executive vice president of Lexus International, said that they have no plans to endure the effects of the Yen to a point that the unit’s business would not function.

Ohara remarked that for cars like the Lexus ES, the current costs levels will allow the brand to continue producing even if the exchange rate is 80 Japanese Yen to a US Dollar.

Ohara reiterated that Lexus’ policy is to protect manufacturing in Japan “as much as possible for as long as possible.” Masatoshi Nishimoto, the manager of Japan and Korea vehicle forecast at IHS Automotive, quipped that Toyota, at some point, may have to stop production abroad to compete on the cost front, just like rival Nissan.

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