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Kentucky scores with new Lexus plant as Toyota shifts production beyond Canada

The Lexus logo.

Moe Doiron/The Globe and Mail

A Toyota Motor Corp. plan to shift production of its most popular Lexus car in North America from Japan to a plant in Kentucky is another sign of how tough it is for Canada to compete for new automotive investment.

The state of Kentucky will provide $146.5-million (U.S.) worth of incentives to Toyota, which is set to announce Friday that it will begin production of its ES350 model in Georgetown, Ky., in the fall of 2015.

That amount for a single project is more than four times the $34-million (Canadian) the federal and Ontario governments are providing Toyota in return for production of a hybrid version of a Lexus crossover utility vehicle at its Canadian plant.

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The state's funding for Toyota shows once again how eager the U.S. and Mexico are to open up the financial taps to attract auto makers. Those efforts have led to billions of dollars worth of investments by Europe- and Asia-based auto makers in the southern United States and Mexico since the auto industry began recovering from the recession in 2010.

"This is one of the reasons we see a hollowing out of the auto sector in Canada," said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. "There are very hungry U.S. states out there that can come and swoop investments."

Canadian governments should pay attention, Mr. DesRosiers noted, because "we have potential investments required in most assembly plants in Canada."

One Canadian industry source said there is such a strong focus by governments on reducing deficits that they can't focus on long-term investments that come just as offshore-based auto makers are focusing on North America as they realize they need to make vehicles where they're bought.

The Toyota announcement is scheduled to be made Friday in New York by chief executive officer Akio Toyoda.

The plan means Lexus production in North America will expand beyond the Toyota Motor Manufacturing Canada Inc. factory in Cambridge, Ont., which has been held up as a sign of Ontario's auto making prowess because it was the only plant outside Japan that was assembling vehicles for the luxury Lexus line. The RX350 crossover assembled in Cambridge is the most popular Lexus model in North America.

A report by the Kentucky Economic Development Finance Authority that outlined the $146.5-million incentive said the Georgetown plant was competing with other Toyota plants for the project.

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U.S. industry sources said Thursday that it's unlikely the Cambridge plant was considered, in part because the RX350 has been selling so well that the factory is already being expanded in order to raise capacity.

One U.S. source said Toyota's internal politics likely played a role also because Steve St. Angelo, who headed North American manufacturing for the auto maker until he was named chief executive officer of Latin America and the Caribbean region last month, has been lobbying for years for a Lexus vehicle plant in Kentucky.

Lexus sold 56,158 ES350 models last year in the U.S. market, up 37 per cent from a year earlier. Canadians bought 2,535 ES350 models in 2012, up 34 per cent from 2011 levels.

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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