Fourteen years after Lexus luxury cars went on sale in the US, the Toyota Motor Co opened the first Lexus assembly line in North America on Friday.
Loud music and fake smoke filled the air as an audience packed with Canadian dignitaries and Japanese executives applauded the first car to roll out of the factory, a silver RX 330 sport utility vehicle. The hubbub made it hard to hear people talking, but it did not obscure the bigger message: Foreign rivals are determinedly pursuing the last redoubt of profitability for American carmakers, SUVs and pickup trucks.
Toyota's decision to start making Lexus models, its luxury line, outside Japan for the first time signals the start of a second wave of foreign luxury vehicle production in North America, nearly a decade after the German automaker BMW started the phenomenon by opening a plant in Greer, South Carolina.
In January, Nissan, whose Infiniti brand made its debut the same year as Lexus, will begin building a new SUV at the company's plant in Canton, Mississippi, which just opened. Mercedes-Benz, meanwhile, is spending US$600 million to double the size of its factory in Vance, Alabama, where it has built the M-Class SUV since 1997.
And Honda is developing a sporty pickup truck that is expected to be shared with its Acura luxury brand. It plans to build the truck at either its plant in Alliston, Ontario, where it assembles the Acura MDX sport utility, or at its factory in Lincoln, Alabama.
Foreign automobile manufacturers have controlled the luxury vehicle market in the US since 1986; the three leading sellers are Lexus, BMW and Mercedes. Though a determined resurgence is under way at Cadillac, industry analysts said they thought that companies based in Japan and Europe would only continue their upward sales march.
"We've had a fundamental shift" by upscale American consumers to foreign luxury vehicles, said Karl Brauer, editor in chief of Edmu-nds.com, which offers car-buying advice to consumers.
This is particularly bad news for American carmakers because luxury vehicles -- including well-appointed SUVs and pickups -- are one of the few market segments in which sales are growing and profits are promising.
As sales in North America grow, European and Japanese companies have found it useful to open factories here. Producing cars locally lets them respond more quickly to consumer tastes, provides some protection from fluctuating currency exchange rates and helps defuse consumers' concerns about putting Americans out of work by buying cars made overseas.
Spending hundreds of millions of dollars to build factories in North America has also demonstrated the foreign carmakers' long-term commitment to increasing their sales here.
To their surprise, these companies have discovered that the quality of the vehicles built in American and Canadian plants equals, and in some cases exceeds, that of vehicles built overseas, according to annual surveys by Consumer Reports magazine and J.D. Power & Associates.
That quality is evident in dealer showrooms. After a brisk August, Lexus is virtually sold out of cars and trucks. There is only a five-day supply of the RX 330, for example, the best-selling vehicle in the Lexus lineup. Denny Clements, Lexus' general manager, said his company could easily sell more than 300,000 vehicles this year, smashing its sales record of 234,000, if it had enough cars and trucks to meet the demand.