Toyota considers moving some Lexus production to U.S.

TRAVERSE CITY, Michigan Wed Aug 8, 2012 1:28pm EDT

The new Lexus 2013 ES vehicles undergo inspection at a Toyota plant in Miyawaka, southern Japan July 6, 2012. REUTERS/Yoko Kubota

The new Lexus 2013 ES vehicles undergo inspection at a Toyota plant in Miyawaka, southern Japan July 6, 2012.

Credit: Reuters/Yoko Kubota

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TRAVERSE CITY, Michigan (Reuters) - Toyota Motor Corp (7203.T) is considering moving some production of its Lexus luxury brand to the United States because of the strength of the Japanese yen, the automaker's head of U.S. sales said on Wednesday.

A likely candidate would be shifting production of the Lexus ES sedan from Japan to the United States, the executive, Jim Lentz, said. Because of the high cost of such a move, Toyota would have to monitor the market and the yen's strength further before making any decision, he added.

"With where the yen is today, I think it's only a matter of time" before Toyota moves more production to North America, particularly to the United States, to have assembly nearer to the U.S. market, he said.

Lentz said that in addition to the strong yen, moving production was "being driven" by engineering capabilities in the United States, including at Toyota's engineering center in Ann Arbor, Michigan, where more than 1,100 engineers are employed.

Japan on Tuesday said it would extend its dollar credit facility, aimed at helping companies invest overseas, by six months as part of its efforts to cope with the strong yen.

Lentz, speaking to reporters at an industry conference in Traverse City, Michigan, said Toyota would stand by its forecast for industrywide U.S. sales of 14.3 million vehicles in 2012.

Currently, about 70 percent of the vehicles Toyota sells in North America are made there. Lentz said that is a good level, but several factors are leading Toyota to consider raising it.

He said that while Mexico is an option for more production, sending production to the United States is more likely.

"We look at North American in toto, but we do very little manufacturing in Mexico. We have one plant," Lentz said.

He said U.S. industry auto sales gained strength in the last quarter of 2011 and early 2012 but then stalled, largely because of a lack of consumer confidence about taking out car loans.

Lentz said sales will not improve significantly until after the November presidential election. Once the election is over, retail sales will increase, regardless of which candidate wins, because there will be more certainty on the course the federal government takes on the economy.

While the European financial crisis may have an impact on U.S. consumers psychologically, Lentz said problems in Europe would not hit U.S. auto sales significantly.

Toyota's incentives for auto buyers are among the lowest in the industry, but the company is considering adding incentives in the luxury market, he said.

AUTO LENDING HELPING SALES

Lentz said he expects the recent surge in subprime lending, which offers consumers with lower credit scores the chance to get a car loan, to continue into the new future.

"The biggest change in lending today is more and more banks are getting involved. That's a big change," he said.

Across the auto industry, banks are become more active in making car loans, which "means banks have a lot of money to lend and don't want to be in the housing market," he said. "There is profit to be made on the car side."

"It's not nearly what it was when the Great Recession hit," he said.

In addition to easier credit, Lentz said new vehicle sales will rise in the next few years because the average age of the 240 million or so cars on U.S. roads is nearly 11 years. He said another factor was slower production from 2008 to 2010, which means a low inventory of vehicles less than five years old; such vehicles compete with new vehicles for consumers' attention.

FUEL CELL SEDAN COMING

Toyota announced more than a year ago that it would have a fuel cell vehicle for the U.S. market in 2015.

On Wednesday, Lentz revealed that the company's first consumer fuel cell vehicle will be a sedan. He did not say how big the sedan would be or whether it would be a lease-only car.

Lentz said he has been driving a fuel cell Highlander SUV that was produced as a test vehicle, and has been getting 300 to 320 miles per refueling of hydrogen. It takes four to five minutes to refuel the vehicle, he said.

"The big question with regard to fuel cells is going to be infrastructure," said Lentz. He would not say how many fuel cell vehicles will be available in 2015.

He said Toyota has not decided if it will roll out the fuel cell sedan in limited markets in the United States.

(Reporting By Bernie Woodall; Editing by Maureen Bavdek and John Wallace)

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