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Is the U.S. Toyota's new export hub?

Posted by: Ian Rowley on May 20, 2008

After years of building U.S. factories to build Toyotas for American customers, reports in Japan today say the giant automaker will soon export vehicles from the U.S. to the Middle East.

The reports claim Toyota will begin shipping Sequoia SUVs to the Middle East later this year. If the sluggish U.S. auto market fails to recover from current difficulties—analysts reckon industry sales may fall to as low as 15 million vehicles this year—Toyota may also consider sending Sienna minivans to China from 2010. Toyota declined to confirm or deny it has plans to export from the U.S.

What is clear, though, is that Toyota like just about all automakers faces a challenging time in the U.S. Today’s news follows confirmation by Toyota on May 12 that it will delay opening a new $1.3 billion Highlander plant in Mississippi, by five months due to concerns over the U.S economy. The plant, which will be Toyota’s seventh in North America, is now slated to crank up production in spring 2010.

In the meantime, selling Indiana-built Sequoias to customers in the Middle East looks smart. While sales of big vehicles like the Sequoia are wobbling in the U.S., auto demand from oil rich Middle Eastern nations and emerging markets such as China and Brazil remains strong. That’s one reason why Japan’s car companies, despite projecting profit declines this year, posted increased sales in the recently ended financial year. Last year Toyota sold more vehicles in the Middle East than it did in China.

It also enables Toyota to maintain production levels at U.S. plants, which are affected by the downturn. At its plants in Indiana and Texas production has already slowed, leaving employees to spend more time on training or plant improvements (Toyota has no plans for layoffs).

Then there’s the currency issue. Ironically for Toyota, which like most Japanese car makers has long been criticized for benefiting from the weak yen, exporting from the U.S. will enable it to cash in on the weak dollar, which has slumped 15%-20% against the yen in the last year. With greenback weak, shipping Sequoias from the U.S. sounds like a profitable business. Indeed, according to Chris Richter, an analyst at broker CLSA here in Tokyo, margins on the U.S. built Sequoia are likely to be close to those on the Japan-made Land Cruiser.

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BusinessWeek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies. Eye on Asia’s bloggers include Asia regional editor Bruce Einhorn, Tokyo reporter Ian Rowley, Korea bureau chief Moon Ihlwan, Asia News Editor and China Bureau Chief. Dexter Roberts, and Hong Kong-based Asia correspondent Frederik Balfour.

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