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Emphasis on Quality Keeps Lexus From Manufacturing in China

April 21, 2014

Many automakers are looking at China as their next hub for car production, especially since vehicle demand in the country is continuously expanding. In fact, it has been shown that by 2020, demand for premium cars in China is expected to grow by 2.7 million cars, taking over the United States as the biggest premium car market.

Despite growing demand, the head of Lexus–Toyota Motor Corp’s luxury car division–Tokuo Fukuichi said focus on quality is keeping them from manufacturing in China, which happens to be the brand’s second biggest market.

At the Auto China car show, Fukuichi said their main priority at the moment is the quality of vehicles and not quantity. Due to this, most of the cars the company sold in China have been imported from Japan.

China’s increasing tariff on imported cars, however, proves to be a challenge for Lexus’s volume production. Last year, it only managed to haul in a seventh and a fifth of Audi’s and BMW’s sale in the region, respectively. Lexus’s decision to import its cars into China is also making its vehicles’ expensive, with an entry-level Lexus ES selling at a base price of $57,700 in China compared to United States’ $36,620.

Unlike its German peers Audi, Volkswagen AG and BMW, which have established their reputation in the past century, Lexus is a relatively new premium car brand that is yet to make a name for itself. Due to this, Fukuichi wants to focus their attention toward quality because that is what Lexus is known for and they want to reinforce this to bring more awareness to the brand. He is concerned that problems on quality can result for customers to abandon Lexus.  However, Fukuichi noted that they are not discounting the possibility of producing vehicles in China.

Lexus was originally launched in 1989, but it took more than a decade for the brand to produce its vehicles outside Japan and into its plant in Canada. By next year, Lexus will start manufacturing in the US, which is its biggest market.

Lexus may have some reservations on producing cars in China. However, two Japanese car makers are already set to start the production of some of their vehicles in the said country. Nissan’s luxury brand Infiniti will begin production of Q50 sedan and QX50 crossover later this year at an existing Nissan plant in the province of Hubei. Meanwhile, Honda’s China production will commence in 2016, with its Acura brand in the pipe.

Johan de Nysschen, president of Nissan’s Infiniti, said they are expecting their China production to be initially expensive than manufacturing in Japan due to less economy of scale. However, expenses can be offset given there will be no tariffs and parts will be made locally, which equates to lesser costs.

In a data released by LMC Automotive, Lexus sold about 70,400 cars in China last year. This was 16 percent higher than its record in 2012. However, Lexus did not disclose the figures of its China sale.

Photo credit: Peter Zoon / Flickr / CC BY 2.0

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