Lexus Will Not Produce Cars In China For Fear Of Quality Issues
|   Wednesday, May 14, 2014
Lexus will not open a factory in China, according to Reuters citing Japanese brand CEO Tokuo Fukuichi. Although China is the second largest market for Lexus in terms of volumes, the Japanese manufacturer does not want to open a factory to serve the largest automobile market in the world due to the fear that the quality provided will not be high enough. So, Lexus committed themselves to provide further models produced mainly in Japan for all markets, despite high import taxes applied in China.


On the Chinese market, Lexus sells five times less than BMW and seven times less than Audi. All these manufacturers have factories in the respective country to avoid specific duties applied to imported models. Those from Lexus made​​ most cars in Japan, but also have a factory in Canada and are planning the opening of a plant in the United States.

Representatives of the Japanese manufacturer say that one reason for its decision is that they are a young brand, launched in 1989, and they don't have the same reputation as rivals from Audi, BMW or Mercedes-Benz.

Tokuo Fukuichi, Lexus CEO and Senior Managing Officer at Toyota, said that "The German Three have a brand image that they have cultivated over the past century in their long history, but Lexus is not in people's minds like that yet. Customers would leave us if we have any problems with quality because that is what they are seeking in a Lexus."

The Japanese automaker's decision to export its vehicles in China, the second largest market for Lexus, has kept prices high. Because of this, an entry-level Lexus ES, the best-selling vehicle of the brand in China, has a starting price of about 57,700 dollars (34,324.81 pounds), compared to 36,620 dollars in the United States.

Other Japanese premium brands have already began moving to start production in China.
Rivals from Infiniti will start producing cars in China via its luxury division with the Infiniti Q50 sedan and QX50 crossover by the end of this year at a Nissan plant in Hubei Province. Honda plans in turn to produce Acura premium models on the Chinese market from 2016. Both brands could surpass Lexus sales in China due to the tax advantages of the models manufactured in the country.

Because there could be less economy of scale, car production in China may initially turn out to be more expensive than making vehicles in Japan, said Johan de Nysschen, President of Infiniti. However, without tariffs and thanks to locally made parts which tend to cost less, as well as overall product pricing, that issue would be sorted out on the long run.

"You cannot compete against your localized competition with an imported car," he said.
The premium car demand on the Chinese market is possible to reach 2.7 million cars a year by 2020, which would make China the biggest premium car market of the world ahead of the United States market.

In 2013, Lexus sold about 70,400 cars in China, up 16 percent from 2012, according to data from LMC Automotive. Note that Lexus does not disclose sales figures in China.
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