Lexus' $311,000 cars make China sales more profitable than 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 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 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.

“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.

Luxury Race

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.”