My Old Kentucky Home: Lexus Production Moves to US

This past week Toyota announced that it will begin producing its Lexus luxury car in the United States for the first time. The company will invest over $500 million to move production of the Lexus ES 350 luxury sedan to its existing plant in Georgetown, Kentucky. Until now the plant in Kentucky, Toyota’s oldest and largest in the United States, produced the flagship Toyota Camry, as well as the Avalon and Venza. The Lexus ES 350 shares underpinnings with the Camry and Avalon, making the transition somewhat easier. This aspect is just one of several strategic implications of the move of Lexus production to the United States.

While it’s parent is fully Japanese, Lexus is an American child, for many years the luxury car was available only in the United States. This focus on the American market led Lexus to the top of luxury car sales every year from 2000 to 2010. In recent years, however, Toyota has watched BMW and Mercedes Benz pass it in luxury car sales and showing little evidence of slowing down. In my opinion this factor played a role in Toyota finally deciding to move the production of Lexus to the United States. As the president of Toyota, Akio Toyoda, said, the company plans to “give regions greater autonomy to make the products their customers want.” By moving the production of the ES 350 to the United States, I believe Toyota will be able to more closely monitor how Lexus is doing compared to BMW and Mercedes Benz. The company can also make production changes more effectively and efficiently at its plant in Kentucky. This high involvement with its target consumers should aid Lexus as it tries to regain its spot as the top luxury car in the United States. The move of production also helps protect Toyota from the Japanese economy and possible disastrous production issues.

From an operations management viewpoint, I think that Toyota is much better off by moving the production of the Lexus to the United States. The ES 300 is essentially an American car, it is not nearly as popular in Japan as it is in the US, therefore it made little sense to have it produced half a world away from where it was being sold. There are no economic benefits since there is an exchange rate penalty for Japanese automakers. Additionally, the 2011 earthquake and tsunami in Japan had devastating effects on production. This disaster revealed just how vulnerable Toyota and other Japanese automakers are, and in my opinion, played a key role in Toyota moving the production of Lexus to the United States. By having all of it’s operations and production in one place, Toyota can become more efficient and continue being a leading automaker.

Do you think it was a good decision by Toyota to move the production of Lexus to the United States?

Will this lead other foreign carmakers to move to America and what affect will that have on the production of American cars?




8 thoughts on “My Old Kentucky Home: Lexus Production Moves to US

  1. I hear you saying how Toyota will begin producing Lexus car in the United States for the first time. Your writing made me think that it can be a good decision from a supply chain efficiency perspective to reduce costs of manufacturing as well as lower taxes that Lexus has to pay on imported cars. In addition, it can be used as a marketing tool to US consumers as they are buying something made in USA. However, it can also be a negative as Lexus consumers can think that product quality could suffer as result as Japanese made cars have a better quality reputation. I think there are more benefits than disadvantages of moving manufacturing to USA. Very interesting post.

  2. In my opinion, I think it is a great thing that Lexus will start to be made here. I am just hoping it will not change the quality of the car as it is one of the most reliable and luxurious cars in the industry. This will not have an effect on the American car production market or sales as I believe that Lexus will still be regarded as a Japanese automobile manufacturer and still have that distinction. In all, I hope that operations will remain the same as they have been overseas.

  3. Personally, I do not think moving production here will drastically help Lexus beat their competition. I believe a big reason Lexus is losing to BMW/Mercedes is due to the other companies offering “Maintenance Free Programs.” Virtually anything maintenance related is “free of charge” when you buy a new BMW. This includes oil changes, wiper blades etc. If a car is of equal quality to another one that is offering free maintenance it makes sense to pick the free maintenance car. BMW/Mercedes do not manufacture their cars in the US. Lexus is only moving ONE line to the US, a few customers may buy because they feel they will be helping American jobs etc. but I feel it will not have a big impact.

  4. I think this factory move can be both positive and negative. As Dferek mentioned in the earlier comment, some may think the quality will suffer because some may start to think that because it is made here it is not the same quality as a Japanese made car. However, I doubt the quality will actually suffer and this will bring more jobs to the U.S which is exactly what we need. At the end of the day, I’m happy Toyota decided to make this move.

  5. Some major factors that were a part of Toyota’s decision to move the ES model to Kentucky were the tsunami and earthquake of 2011, and the increasing strength of the Japanese yen over the dollar. The earthquake at Fukushima crippled Toyota’s production levels in 2011. The pressure from that, and the exchange rate challenges between themselves and their consumers were just too much for them to continue producing in Japan. While the move will only create about 750 jobs, it is both a great marketing strategy and overall long-term cost reduction strategy for the company.

  6. I definitely think it was a smart move for Toyota to move the production to the United States. It will enable them to change and update different aspects of the car quickly and without any issues of having to explain it all the way across the world. Another thing that was probably a factor was that they will save a bunch of money on shipping, which may even out the higher wages they will have to pay the American workers. All in all it was definitely a good decision to move production.

  7. I do think it was a good idea for Toyota to move the production of the car to the United States. I believe that especially since the car’s main market is the United States. By doing this many links in the operation supply chain. Mistakes in production could be easily corrected and cars could be sent back to be fixed before they arrive at the dealer.

    Lexus could also have a much easier ordering process and faster arrival of the vehicles. Mercedes Benz and BMW already have moved the production of their SUVs to Alabama and South Carolina respectively. This has helped mercedes expedite their production and bring the production of the high selling card more near to the dealers that sell them.

    More and more automakers from foreign countries will continue to do this but Lexus is not the first.

  8. I think it is a good idea for Lexus to start being manufactured in the United States. It’s an interesting decision by the producers, but I think it will be for the better of their productions and to be able to have a more point of view on the competitors (such as Audi, BMW, and Mercedes). I remember when I was in grade school when Lexus could actually be compared to Mercedes Benz and BMW, but from their lack of auto design and production I can see why they are making this move. I don’t think is will have an impact to American car because the consumers that tend to buy luxury cars are at different income levels as to those who purchase American cars.

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