Many people know that Lexus is the luxury brand that Toyota owns. The company is planning on opening a new production plant in 2015. The plant will be located in United States. Although, Toyota does have plants make Toyota brand cars, this will be the first US plant that Lexus will open. It will also be the very first time the Lexus ES will be produced outside of Japan. This is very interesting because most companies would look to go to countries with cheap labor and flexible labor laws. In the US, there are a lot of regulations that protect workers. What would cause Toyota to bring Lexus in the US?
Just as we learned in class, there are a couple reasons why companies would globalize. Some of the reasons are to reduce costs, improve their supply chain, and provide better goods and services.
It is reported that “[Lexus] will receive as much as $146.5 million in tax credits, significantly bringing down the overall cost of the investment. Bloomberg reported earlier this week that Toyota would have to invest $531.2 million and add 570 full-time jobs in order to yield the full value of the package”. The tax credit is definitely one of the main reasons why Lexus would want to come relocate in America. This move will help reduce costs such as shipping the cars from overseas by improving their supply chain. Also it will help provide a better service for Lexus owners because the plant is not located domestically.
Not only does Lexus benefit from this new plant but so does the people of Kentucky. In order to be efficient and complete their goal of producing 50,000 per year, they will need to hire a lot more workers. This will create a lot of new jobs for the people of Kentucky. Everyone seems to be pleased with the move and there have been no ethical problems with it. Even the state governor said, “This is a great day for Toyota and for the commonwealth of Kentucky”.
Toyota is also looking to retain its title as the “world’s biggest carmaker” because Volkswagen is closing the margin between them. If the opening of the North American Production Plant, this will give them the edge they need. Hopefully with the success of the new US plant, this will cause more companies to relocate here.
Do you think this was a will be a smart move for Lexus to produce their cars for the first time outside of Japan? What would some of the concerns be for the carmaker?
Do you think the US government is giving these large tax credits to help stimulate the economy by creating new jobs?
Will other carmakers follow?
4 thoughts on “2015 = First US Lexus Production Plant”
With the amount of tax credits Toyota will be gaining and the jobs it will create, I think it might be a smart move for Toyota to open up a Lexus production plant in the US. Also, the fact that it provides better services for Lexus owners, it seems like a win win situation for everyone. Some of the definite concerns for Toyota will be the higher costs but since they will be gaining large tax credits, it might be okay. The US government is definitely giving out these large tax credits to help stimulate the economy. There is no doubt about that. Other carmakers might follow because of the gains that Toyota is getting from opening up a plant in USA. I know that Nissan is considering to open up a plant in the US for their Infiniti cars because of the currency issues that is lowering their profits. Like Toyota and Nissan, many of the leading car makers will soon follow because eventually it leads to lowering transportation and change in currency costs, better supply chain and services for their customers. And let’s not forget that these new plants will lead to many job opportunities and stimulate the economy. Its a win win for all.
Another possible scenario I can see for Toyota doing this is for supply. I remember back when the tsunami hit Japan, that Toyota and Lexus had a large shortage of cars due to the fact that alot of their inventory got damaged. They probably figured that since the U.S. was going to provide them with so many tax credits it would not only be a good supply chain investment, but also a good marketing tool because some buyers may be more inclined to buy a car that was produced in the U.S. over one that wasn’t.
One thing that might be an issue when moving Lexus production to the U.S. from Japan is the quality of the cars. While this could result as either a decline or increase in the quality of Lexus cars produced in the U.S., I don’t think Lexus would want the quality to decrease. I think that because BMW and Mercedes have been able to bypass the quality and customer service options of Lexus in the past that Lexus can’t afford to take a hit in regards to the quality of their cars.
I think moving the production of Lexus to the US is a brilliant strategic decision since then the car will be made in the US and can be exported to Canadian and Mexican markets under the NAFTA agreement. Toyota will not need to worry about export tariffs for Lexus. Japan has experienced serious problems of power shortage and chain supply earlier this year in April, after the Tsunami occurred. This made me think about the negative impact that the Tsunami had on exported goods to the US and other parts of the world. As far as I know, the BMW has started to produce certain models of cars in the US because labor costs are cheaper here than in Germany or Austria. I am not sure if this is case for Japan, but Toyota has also received a great deal in tax credit that has been in support of opening manufacturing plants in the US.