Import duty being waived on Lexus cars and trucks?

JAPAN'S BARGAIN

In this first of a two-part series, Motoring assesses the potential of Lexus' new products should Japanese-made cars with engines over 3,000cc are waived import duty

Japan's proposal for Thailand to waive import duty on cars with engines over 3,000cc may seem a minor issue under the free trade agreement (FTA) the two countries are pursuing. But in real it's one with serious implications in the luxury car market here.

An agreement to that effect would change the marketing strategies of premium Japanese brands, as well as of rival European makers selling locally assembled models here.

Prices of expensive nameplates from Japan's major players could fall substantially should import duty on completely built-up vehicles be lifted from the current 80%. That means potential buyers may also shy away from Europe's finest such as Mercedes-Benz, BMW, Volvo and Land Rover.

The biggest beneficiary of such a deal would be Toyota and its Lexus upscale brand. Nissan and Honda also have exclusive names _ Infiniti and Acura respectively _ but the implications on them will be assessed next week.

Supporters of the proposal say that Japan is seeking some return on investment it made in Thailand, like the relocation of its pickup lines.

Currently, only Australia enjoys a waiver of import duty on car engines over 3,000cc following the coming into effect January 1 of the free trade agreement Thailand signed with Australia last year. Australia buys mass-market models from Thailand.

Opponents of the proposal, on the other hand, are not against free trade, but want the duty to be phased out gradually in stages. Mercedes, BMW and Volvo as such are those luxury carmakers that are required to pay 30% import duty on their completely knocked-down models. This issue is not related to excise tax which remains between 30-50% depending on engine size.

Theoretically, models that are imported in completely built-up form and not subject to import duty hold advantage over their Thai-made counterparts. So if Japan gets its way, most models Lexus sells could become cheaper than its rivals _ something it hasn't enjoyed here so far.



For Lexus, the move comes at a time when it is taking world markets including Thailand more seriously. It should also be noted that every single model Lexus sells here and elsewhere comes with 3,000cc-plus engines to choose from, although exhausts emissions and fuel compatibility (Thailand has benzene with maximum octane of only 95) also need to be considered.

Lexus will be launched in Japan this year replacing the Toyota-badged mega-cars and sport-utes.

Such a move will help Lexus in the numbers game and boost its credibility globally against players from Europe.

HYBRID CHARGE

Giving privilege to cars with big engines may not sound politically correct during times of high oil prices. But it is important to note that Lexus is now selling benzene/electric hybrids in some models, all of which come with benzene engines displacing more than 3,000cc.

Hybrid-powered cars and sports-utility vehicles can be seen as Lexus' answer to motorists needing a more fuel-efficient engine. Europe's current alternative is diesel.

Although the RX400h (as driven on page M8) is being launched in the US, Europe and Japan this year, sources told Motoring that the SUV hybrid won't be due in Thailand until 2007. Since the Excise Department taxes hybrids with benzene motors less than 3,000cc at a rate of 10%, the RX400h _ coming with a 3.3-litre V6 and electric motor _ would face the maximum 50% rate applied to passenger cars.

This means that its price would still be at least five million baht if it were to go on sale now. With no import duty, the RX400h could cost around 3.5 million baht. Not only will it be priced lower than the BMW X3 or Volvo XC90, but the RX400h also has fuel economy to boast.

Also on the cards is the GS450h which was launched at the New York Auto Show and goes global next year. Combining a 3.5-litre V6 with electric power, the GS executive car would have the performance and fuel economy to match the turbo-diesel of Mercedes E-class.

This hybrid approach is being considered for the all-new LX470 (Land Cruiser Cygnus). Currently, it is priced heftily at over six million baht and is notorious for its gas-guzzling V8 motor.

Should the LX470 hybrid be considered for Thailand, it would comfortably undercut the Range Rover's B7m-plus pricetag. This would also be the same for the next LS luxury saloon rivalling the BMW 7-series and Mercedes S-class.

CONVENTIONAL POWER

Currently, the LS430 sells in small numbers, but commands a significant following among luxury car punters looking for comfort.

With no import duty, the LS430 could be priced at around five million baht, down from eight million. It would certainly disrupt sales of the Thai-made BMW 730i and Mercedes S280, both costing under 6.5 million baht.

Even better for Lexus is the all-new replacement for the LS next year. According to the rumour mill, the new LS will come with 4.6-litre V8 engine and long wheelbase to take on the stretched 7-series, S-class and Jaguar's imported XJ.

The LS will be an important car for buyers to understand the brand's core values _ at a price that will be more accessible than all of its rivals'.

Although the GS300 is currently wooing buyers at five million baht, the one to watch for is the GS350 whose 3.5-litre V6 engine is consistent with what the Japanese are trying to achieve at the negotiating table. Minus the import duty, it will cost below four million baht, the going price of 525i and E240 made in Thailand.

Lexus can also turn the party wild with the V8-powered GS430 that could cost as much as its six-cylindered German rivals. The current GS300 is already hit by 50% excise tax due to the 228hp engine (even though the engine is under 3,000cc).

The second-generation IS is planned for Thailand early next year. This is the model Lexus found was most difficult to sell due to the junior executive car's smallest margins. Also, the 3-series and C-class are bolted in Thailand with prices kicking out at under three million baht.

The 2.5-litre V6-powered IS250 stands no chance of becoming cheaper than the 325i or C230K, but does so with the IS350 model which comes with a 300hp 3.5-litre V6 that will also sit under the bonnet of the GS350. At the moment there is no hybrid plan for the IS. Although a new diesel has been developed for Europe, there is no automatic transmission and the oil-burner displaces only 2.2-litre.

If no problems are encountered with fuel compatibility or emissions, the IS350 will have the performance and price, around three million baht, to dent the Germans.



The SC430 (and next SC460) roadster can also enjoy benefits under the proposed terms by coming with Merc SL-performance, but at prices of a five million baht CLK.

ONLY FOR THE USThe current ES300 and RX300 come with V6 engines displacing less than 3,000cc. There are 3.3-litre alternatives (ES330 and RX300) but are only adapted for the US market.

The only way to make them competitive under the terms being negotiated is to fit a hybrid powertrain like in the RX400h. There is no such plan for the ES yet _ and it could possibly never materialise as the executive car may be eliminated in the future. The ES is too close to the IS and GS, and killing it would mean more breathing space between the two rear-drive saloons. The Toyota Camry will remain the benefactor of ES front-drive mechanicals.

There's the GX470 (Land Cruiser Prado) to help add colour to the mid-sized SUV segment. But it is only for America and Lexus is considering a monocoque body for the replacement _ or even a crossover _ to enter BMW X5's territory.