Lexus aloof from China production while Nissan, Honda step in

BEIJING Sun Apr 20, 2014 12:51pm EDT

A Lexus IS 250 is seen on an elevated display at the New York International Auto Show in New York City, April 16, 2014. REUTERS/Mike Segar

A Lexus IS 250 is seen on an elevated display at the New York International Auto Show in New York City, April 16, 2014.

Credit: Reuters/Mike Segar

Related Topics

BEIJING (Reuters) - The head of Lexus, the premium brand of Toyota Motor Corp (7203.T), said on Sunday an emphasis on quality had kept it from manufacturing in China.

Unlike German peers Audi, Volkswagen AG's (VOWG_p.DE) luxury division and BMW (BMWG.DE), Lexus imports all of its vehicles sold in China, from Japan.

But high tariffs charged on imported cars make it hard to generate volume and last year, Lexus sold around a seventh of Audi's tally and a fifth of what BMW sold in China.

Tokuo Fukuichi, the head of relative newcomer Lexus, said at the Auto China car show that he prioritizes the quality of vehicles over quantity.

"The German Three have a brand image that they have cultivated over the past century in their long history, but Lexus is not in people's minds like that yet," said Fukuichi, who is also Toyota's Senior Managing Officer, referring to Audi, BMW and Mercedes-Benz (DAIGn.DE).

"Customers would leave us if we have any problems with quality because that is what they are seeking in a Lexus," he told Reuters.

Fukuichi said that Lexus has been considering the possibility of manufacturing in China but no specifics were being discussed and nothing has been decided.

Lexus, which was launched in 1989, took nearly 15 years to start manufacturing outside of Japan at a plant in Canada. It still makes much of its vehicles in Japan but last year it said it will also start production in its biggest market, the United States, in 2015.

Its choice to import its vehicles into China, Lexus's second biggest market, has kept prices high. The entry-level Lexus ES, the brand's best-selling vehicle in China, has a starting price of about $57,700 there, compared to $36,620 in the United States.

NISSAN'S INFINITI

Other Japanese premium brands have already made a move to start production in China.

Nissan is set to start manufacturing its luxury arm Infiniti's Q50 sedan and QX50 crossover at an existing Nissan plant in Hubei province later this year, while Honda (7267.T) aims to build Acura in China from 2016.

Infiniti's President Johan de Nysschen said that production in China may initially turn out to be more expensive than making vehicles in Japan because there could be less economy of scale.

But overall product pricing would become more competitive without tariffs and locally made parts tended to cost less, he said.

"You cannot compete against your localized competition with an imported car," he told Reuters.

China's premium car demand is likely to reach 2.7 million cars a year by 2020, which would make China the world's biggest premium car market ahead of the United States.

In 2013, Lexus sold around 70,400 vehicles in China, up 16 percent from a year ago, according to data from LMC Automotive. Lexus does not disclose China sales figures.

Lexus unveiled its new NX compact crossover SUV at the auto show on Sunday, which competes with Audi's Q3 and BMW's X1.

(Editing by William Hardy)

FILED UNDER:

Track China's Leaders