$147 Million Tax Break Yields US Built Lexus

The incentive helped seal a deal with Toyota to move nearly all production of the Lexus ES luxury vehicle to Kentucky.

Toyota Motor Corp. has been offered $146.5 million worth of tax breaks from the State of Kentucky to add production capacity at its Georgetown plant where, a company source told Reuters on Thursday, it will build the Lexus ES from 2015 on.

The offer from the Kentucky Economic Development Finance Authority in a preliminary approval published on Wednesday comes as Toyota’s president, Akio Toyoda and Jim Lentz, the manufacturer’s head in North America, prepare to make an announcement on U.S. production on Friday.

The pair will unveil a plan to build the Lexus ES in Kentucky, the first time the luxury model, currently made only at Toyota’s Kyushu plant, will be fabricated outside Japan, a Toyota executive said, confirming media reports in Japan about the production change.

The executive spoke on condition he was not identified because he was not authorised to talk to the media.

A Toyota spokesman declined to comment.

The Georgetown facility will eventually produce as many ES cars as Toyota sells in the U.S. and Canada, which last year added up to 59,000 cars, the source said. The ES hybrid variant will still be made exclusively in Japan, he added

Expanding output at the Kentucky facility, which is operated by Toyota Motor Manufacturing Kentucky Inc., would fit with the automaker’s strategy of adding capacity at existing plants rather than breaking ground at new locations. Toyota had previously said it would freeze plans for any new plants for the next three years.

The tax incentives being offered by Kentucky would be spread over 10 years on an estimated investment of $531 million, creating 750 new jobs, according to a copy of the preliminary approval.

LEXUS – SOLD IN THE U.S.A.

The luxury ES, which Toyota does not sell in Japan, was the second most popular Lexus model in the United States in 2012 after the RX SUV, which it has been building in Canada for several years.

When the new ES went on sale last year, Toyota executive Kazuo Ohara said Toyota was aiming to sell about 10,000 of the vehicles a month, including 5,000 in the United States and 3,000 in China. Overall, Toyota wants to sell about 500,000 Lexus vehicles globally in 2013, 23,000 more than last year.

The boost to the Georgetown plant underscores an improvement in the carmaker’s fortunes in the key U.S. market where it has been buffeted by recalls, litigation and rivals such South Korea’s Hyundai Motor Co aiming to grab its market share. Toyota’s U.S. sales rose 27 percent last year and 9 percent in the first three months of 2013 compared with the same period last year.

Toyota and other Japanese automakers have been pushing to increase production of vehicles in the markets where they sell them to counter a strong yen that had made exporting from Japan expensive. The yen’s decline since late last year has not changed that strategy.

Toyota’s 500,000 vehicle-capacity Kentucky plant makes the Camry sedan, its best-selling model in the United States, as well as the Avalon sedan and Venza crossover. It also makes hybrid variants of the Camry and Avalon, which share the same platform as the Lexus ES.

SOURCE:  Reuters