Japanese automaker Toyota said it will invest about 1 billion reais ($494 million) to build a new Brazilian engine factory supplying local car plants, bringing more of its supply chain to Brazil under government pressure.
“With the local production of this engine, the national content of the Etios and Corolla will jump from 65 per cent to 85 per cent,” Chief Executive Akio Toyoda told reporters during a visit to the Brazilian capital. “This is a sign of gratitude and greater cooperation with Brazilian society,” he added.
The investment comes as Brazil’s President Dilma Rousseff shapes a new set of rules for the local auto industry, after imposing a steep tax increase on vehicles with significant foreign content to protect local jobs.
Toyota executives were in Brazil for the inauguration of a new factory making Etios compact cars, built with an investment of $600 million. That plant is set to produce 70,000 vehicles per year, employing some 1,700 workers.
The Etios factory, along with the new engine plant slated to open in the second half of 2015 and the factory currently making the larger Corolla, are clustered in an industrial corridor in Sao Paulo state.
Toyoda said initial estimates for the new engine plant suggested it would employ around 600 to 700 workers at first and the workforce would grow as needed.
Meanwhile, Toyota is considering moving some production of its Lexus luxury brand to the United States because of the strength of the Japanese yen, the automaker’s head of US sales said.
A likely candidate would be shifting production of the Lexus ES sedan from Japan to the United States, the executive, Jim Lentz, said. Because of the high cost of such a move, Toyota would have to monitor the market and the yen’s strength further before making any decision, he added.
“With where the yen is today, I think it’s only a matter of time” before Toyota moves more production to North America, particularly to the United States, to have assembly nearer to the US market, he said.
Lentz said that in addition to the strong yen, moving production was “being driven” by engineering capabilities in the United States, including at Toyota’s engineering center in Ann Arbor, Michigan, where more than 1,100 engineers are employed.
Japan on Tuesday said it would extend its dollar credit facility, aimed at helping companies invest overseas, by six months as part of its efforts to cope with th e s trong yen. Lentz, speaking to reporters at an industry conference in Traverse City, Michigan, said Toyota would stand by its forecast for industrywide US sales of 14.3 million vehicles in 2012.
Currently , about 70 per cent of the vehicles Toyota sells in North America are made t here. L entz said that is a good level, but several factors are leading Toyota to consider ra ising it.
He said that while Mexico is an option for more production, sending production to the United States is more likely.
“We look at North American in toto, but we do very little manufacturing in Mexico. We have one plant,” Lentz said.
He said US industry auto sales gained strength in the last quarter of 2011 and early 2012 but then stalled, largely because of a lack of consumer confidence about taking out car loans.
Lentz said sales will not improve significantly until after the November presidential election. Once the election is over, retail sales will increase, regardless of which candidate wins, because there will be more certainty on the course the federal government takes on the economy.
While the European financial crisis may have an impact on US consumers psychologically, Lentz said problems in Europe would not hit US auto sales significantly.
Toyota’s incentives for auto buyers are among the lowest in the industry, but the company is considering adding incentives in the luxury market, he said.
Lentz said he expects the recent surge in subprime lending, which offers consumers with lower credit scores t he chance t o get a car loan, to continue into the new future.