Lexus ES sedan production coming to Kentucky

Toyota Motor Corp. plans to invest $360 million to bring production of the Lexus ES sedan to Kentucky, making it the first model from Toyota's premium brand to be built in the United States as the carmaker pushes to localize more manufacturing.

Under the plan announced Friday in New York by CEO Akio Toyoda, Toyota will boost annual capacity at its Georgetown, Ky., plant by 50,000 vehicles to accommodate ES output.

Production will be limited to the ES 350 and will start in time to sell the model in North America by the summer of 2015, people familiar with the plan said. Those cars are currently imported from Toyota's Miyata assembly plant in southwestern Japan.

The shuffle marks the first Lexus nameplate built in the United States and only the second built outside Japan. Toyota began manufacturing the Lexus RX crossover at its Cambridge, Ontario, plant in 2003.

The RX was the first transferred out of Japan partly because it is the top-selling Lexus in North America.

In 2012, Lexus sold 95,381 units of the RX in the United States. The ES, which was redesigned last year, was the second-best selling vehicle, with U.S. volume of 56,158 units.

Toyota is shifting more production of high-volume models out of Japan to the markets where they are sold, partly as protection against volatile exchange rates. Toyota is also embracing a build-where-you-sell strategy with the aim of developing cars better tailored to local demand.

The move comes as Nissan Motor Co. considers a new North American plant to manufacture vehicles for its Infiniti lineup of premium vehicles.

The Miyata plant currently producing the ES opened in 1992 on the southwestern island of Kyushu. That plant will keep making the ES 250, the ES 300h hybrid and the ES 350.

But to compensate for the loss of 50,000 units to the United States, the Kyushu plant will start producing a new model in late 2014, according to the people familiar with the plans. It was unclear whether that vehicle would be a Toyota-brand vehicle or a Lexus offering.

Lexus is widely reported to be considering expanding its lineup to include a sporty coupe or a compact crossover.

Either could be a contender to fill the gap in Kyushu.

In Kentucky, the arrival of the ES will expand annual capacity at Toyota's Georgetown plant to 550,000 units. Toyota plans to hire 750 employees as part of the build out. Kentucky economic development officials say the new hires will include 180 contract employees.

That plant currently makes the Avalon, Avalon hybrid, Camry, Camry hybrid and the Venza. It employs 6,600 workers.

The EX shares engines and transmissions with the Avalon and Camry sedans, making it a good candidate for Georgetown production. Georgetown also is arguably the North American plant most immersed in the Toyota Way. It opened in 1988 as the company's first major assembly plant in the region.

Toyota has considered more Lexus production in North America for years. But maintaining quality control was a top concern.

Last year, Kazuo Ohara, then deputy chief officer for Lexus, said some in Japan doubted U.S. factories were up to the task.

"It's the quality," Ohara said. "We need some training to build Lexus-quality vehicles. For Canada, it took several years to catch up to the Kyushu level of quality."

But he conceded Toyota was under increasing pressure to build more vehicles outside Japan to alleviate the profit pinch of the yen's appreciation against the dollar and euro.

Said Ohara: "If we consider the current exchange rate, we have to think about something to absorb the so-called yen shock."

A year earlier, Ohara fingered the ES as the best possibility for localized production. Another option, he said, was building more RX crossovers in Canada, including the hybrid version.

About 21 percent of the RX crossovers sold in the United States last year were still imported from Japan.

(Toyota to shift Lexus ES output to Kentucky originally appeared on Automotive News, sub. req.)

By Hans Greimel- Automotive News