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Lexus' $311,000 Cars Make Its Sales in China More Profitable Than In U.S.

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 increase 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. While China is more profitable at the moment, the U.S. “can be very profitable. Both are very important markets to us.”

Toyota introduced the Lexus brand in 1989, specifically for the U.S. market. Lexus sales in China, which began in 1993, 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 0.5 percent to 3,275 yen as of the 2:49 p.m. in Tokyo. The stock has fallen 16 percent in 2010.

CT 200h

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 20 percent of luxury leader Volkswagen AG’s Audi brand and a third of Daimler AG’s Mercedes-Benz and Bayerische Motoren Werke AG’s deliveries this year.

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 sport-utility 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.

$990,000 Phantom

“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 83.77 to the dollar as of 10:24 a.m. in Tokyo today, 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.

Higher Incentives

The company more than tripled incentive spending per vehicle in October from a year earlier and almost doubled them last month, 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.

When the dollar strengthens again, profitability should improve, Schlicht said.

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.”

To contact the reporter on this story: Makiko Kitamura in Tokyo at

To contact the editor responsible for this story: Kae Inoue at

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