Toy­ota lux­ury Lexus cars make China sales more profitable

The Pak Banker - - Company& -

TOKYO: Toy­ota Mo­tor Corp.'s profit per ve­hi­cle in China for its lux­ury Lexus brand has eclipsed that of the U.S., where it has been forced to triple in­cen­tives fol­low­ing record re­calls ear­lier this year.

Even af­ter China's im­port du­ties and higher taxes on lux­ury cars, Lexus cur­rently earns more per car in the world's largest auto mar­ket, said Karl Sch­licht, head of the mar­que's global prod­uct and mar­ket­ing di­vi­sion, cit­ing a weaker dol­lar. Pre­mium pric­ing in China and the higher in­cen­tive spend­ing in the U.S. are also fac­tors, an­a­lysts said.

"We're go­ing through pretty un­prece­dented times with our U.S. op­er­a­tions given the qual­ity is­sue," Sch­licht said in an in­ter­view this week in Nagoya, west of Tokyo.

Lexus sales in China will rise about 50 per­cent this year, Sch­licht said. De­liv­er­ies to­taled about 30,400 units in 2009, ac­cord­ing to re­searcher J.D. Power & As­so­ci­ates. Sales gained 7.7 per­cent to 201,769 in the U.S., the brand's biggest mar­ket, this year through Novem­ber.

Toy­ota fell 0.6 per­cent to 3,290 yen as of the 3 p.m. close of Tokyo trad­ing yes­ter­day. The stock has fallen 15 per­cent in 2010.

De­liv­er­ies in China next year will be helped by the in­tro­duc­tion of the new sporty CT 200h hy­brid-only model, Sch­licht said.

Lexus, the top-sell­ing lux­ury-car brand in the U.S. since 2000, trails be­hind ri­vals in China, sell­ing about a third of Daim­ler AG's Mercedes-Benz and Bay­erische Mo­toren Werke AG's de­liv­er­ies this year. $990,000 Phan­tom In China, im­porters pay a 25 per­cent cus­tom duty and a 17 per­cent value-added tax. Con­sump­tion tax, which can reach 40 per­cent, is based on the car's en­gine size, said Lin Huaibin, an an­a­lyst at in­dus­try con­sul­tant IHS Au­to­mo­tive in Shang­hai.

For a Lexus GX460 sportu­til­ity ve­hi­cle, which starts at 1.16 mil­lion yuan ($174,000) in China, Toy­ota charges a pre­mium of al­most $70,000 af­ter taxes, Lin said. The same ve­hi­cle has a base price of $52,345 in the U.S.

The Lexus LS600hL, the brand's flag­ship hy­brid sedan, has a base price of 2.07 mil­lion yuan ($311,000) in China, com­pared with $110,000 in the U.S.

"We want to tar­get each re­gion, make sure we're com­pet­i­tive and pro­vide a price for that re­gion," Sch­licht said.

Other lux­ury au­tomak­ers also charge higher prices in China. Rolls-Royce Mo­tor Cars Ltd., BMW's most lux­u­ri­ous name­plate, prices its Phan­tom sedan from 6.6 mil­lion yuan ($990,000), com­pared with a start­ing price of $380,000 in the U.S.

A stronger yen against the dol­lar is also cut­ting U.S. profit for Lexus, which ex­ports all mod­els from Ja­pan ex­cept the Canada-built RX SUV. The yen was at 84.08 to the dol­lar as of 5:47 p.m. in Tokyo yes­ter­day, af­ter touch­ing 80.22 against the dol­lar on Nov. 1, the high­est level since April 1995.

Ev­ery one-yen ap­pre­ci­a­tion against the dol­lar cuts Toy­ota's op­er­at­ing profit by 30 bil­lion yen ($357 mil­lion) as the yen-value of repa­tri­ated earn­ings falls.

Ear­lier this week, Toy­ota said U.S. Lexus sales dropped 1.4 per­cent in Novem­ber, com­pared with a 30 per­cent surge at BMW and an 8.4 per­cent gain at Mercedes-Benz. Lexus still holds the lead this year through Novem­ber.

The com­pany more than tripled in­cen­tive spend­ing per ve­hi­cle in Oc­to­ber from a year ear­lier, ac­cord­ing to Au­to­data Corp.

Higher spend­ing on in­cen­tives means Lexus mod­els may ac­count for about a third of U.S. op­er­at­ing profit, down from as much as half in the year through March 2008, said Koji Endo, an auto an­a­lyst at Ad­vanced Re­search Ja­pan in Tokyo.

The au­tomaker, based in Toy­ota City, Ja­pan, has been strug­gling to re­cover its im­age af­ter re­call­ing Toy­ota and Lexus-brand mod­els, in­clud­ing more than eight mil­lion ve­hi­cles world­wide for prob­lems re­lat­ing to un­in­tended ac­cel­er­a­tion.

While in­cen­tives cut prof­itabil­ity, they are nec­es­sary as the re­calls this year have af­fected sales, Sch­licht said.

"We know it's high, but we think it's bet­ter for the brand," Sch­licht said. "It's some­thing we as a group, the com­pany, thinks we need to do." ;

More­over, snow­storms and freez­ing tem­per­a­tures are dis­rupt­ing travel across Europe for a fifth day as air­ports can­cel flights and train op­er­a­tors limit ser­vices.

Eurostar Group Ltd. plans to op­er­ate a "sig­nif­i­cantly re­duced" timetable un­til at least Dec. 5 and has halted all ticket sales un­til Dec. 6, the com­pany said on its web­site.

London's Gatwick Air­port, the U.K.'s sec­ond­bus­i­est, said it re­opened this morn­ing af­ter be­ing closed since Nov. 30.

De­lays, can­cel­la­tions and a limited ser­vice should be ex­pected, ac­cord­ing to the air­port's web­site.

The ear­li­est wide­spread snow­fall in the U.K. since 1993 has frozen over roads, dis­rupt­ing traf­fic, with icy weather likely to last un­til at least Dec. 8, ac­cord­ing to pri­vate fore­caster Bri­tish Weather Ser­vices. -Bloomberg

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