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Toyota bets made-in-Japan Lexus can drive sales

MIYATA, Japan (Reuters) – Toyota Motor on Friday launched production of its revamped Lexus ES sedan, a flagship luxury car that represents a renewed bet the automaker can keep building cars for the United States and China at more costly factories in Japan.

Toyota, Japan’s top automaker, has made it a goal to safeguard production of some 3 million vehicles a year in its home market – roughly triple the equivalent output at Nissan Motor and Honda Motor and about 40 percent of the cars and trucks Toyota builds globally.

Lexus is key to that commitment. The only Lexus model made outside Japan is the RX sport-utility vehicle manufactured in Ontario, Canada.

Japanese automakers, including Toyota, have been reeling from a strong yen that has eroded profits on exports. The Lexus strategy leaves the brand more exposed to foreign exchange than Toyota’s mainline brand, but Toyota officials said the made-in-Japan strategy would pay off even at current yen levels.

“We have no plans to endure to a point that our business won’t function. But for cars like the ES, we are seeing cost levels that will allow us to continue producing even if the yen is at 80 yen against the dollar,” said Kazuo Ohara, executive vice president of Lexus International.

“Our policy is to protect manufacturing in Japan as much as possible for as long as possible,” Ohara said.

Audi, Mercedes-Benz and BMW already make cars in China, where imported luxury vehicles face tariffs of 25 percent. Nissan plans to start building Infiniti vehicles in China from 2014.

“At some point Toyota may have to move production abroad to compete on the cost front,” said Masatoshi Nishimoto, the manager of Japan and Korea vehicle forecast at IHS Automotive.

Nishimoto said Toyota could make such a move within five years and keep its high-profile domestic production target if it can drive sufficient global sales growth in the interim.

Toyota expects the all-new ES lineup, including a first-of-its-kind hybrid option, will drive global sales growth of more than 60 percent for its top-selling luxury car.

Toyota also sees the launch of the 2013 model as step toward retaking an important bragging right by making Lexus the best-selling luxury brand in the United States, a position it lost in 2011 when the Japan earthquake and tsunami disrupted output.

The new ES, which will not be sold in Japan, will be made in Toyota’s Miyata plant on Japan’s southern island of Kyushu.

The redesign of the ES, built on the Toyota Avalon platform, follows a spate of Lexus revamps this year that are part of a push by Toyota to show it can attract consumers younger than the American “baby boomers” who made Lexus a hit in the 1990s.

The ES competes with BMW’s 3-Series sedan, Mercedes-Benz’s C-class and Infiniti’s G sedan. Mercedes-Benz is Daimler’s premium car brand and Infiniti is Nissan Motor’s luxury brand.

Between January to June this year, Toyota sold about 18,270 ES sedans in the United States, up 10 percent compared to the same period in 2011, making it the second-best selling Lexus after the RX SUV.

Globally, 74,000 ES vehicles were sold last year, accounting for about 18 percent of the total number of Lexus vehicles sold.

The ES, which stands for “Elegant Sedan,” will go on sale in August. Toyota is aiming to sell about 10,000 ES vehicles a month, including 5,000 in the United States and 3,000 in China, Ohara told reporters.

The pricing of the ES line, which includes the hybrid option and versions with 2.5-litre and 3.5-litre engines, was not immediately available.

Last year, Toyota sold 404,000 Lexus vehicles, down from a peak of 518,000 in 2007.

(Reporting By Yoko Kubota; Editing by Matt Driskill)

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