Toyota Reviews U.S. Ops; Not Profitable Here

By Richard Read

Although many economists have begun to see light at the end of the recessionary tunnel, Toyota Motor America chairman Yoshimi Inaba claims that Toyota (TM) is not currently profitable in North America, even though the company has taken numerous cost-cutting measures in recent months. According to Inaba, Toyota is reviewing its entire U.S. operations plan, and among the major decisions facing the company is whether to open its new factory in Mississippi (still under construction) and what to do with the NUMMI plant in California.

The shell of the Blue Springs, Mississippi, facility has been completed, but no factory equipment has been installed. Toyota had initially planned to use that plant to boost production of the Toyota Highlander, but then switched focus to the Prius when hybrid interest peaked last year. Construction was suspended entirely last December amid the international economic downturn, and it's been sitting mothballed ever since. Inaba said that he hopes to move forward with development of that plant in the future, although the company is, like every other automaker, keeping a tight rein on production.

The situation at the NUMMI plant in Fremont, California, is slightly more complicated. You might recall that NUMMI was initially a joint venture between Toyota and General Motors, but that General Motors recently pulled out of the arrangement, leaving the future of the plant and its 4,700 employees in the air. Inaba acknowledges that California is Toyota's biggest market in the US, and that closing NUMMI would affect not only production, but also the company's image in the state. On the other hand, the company's contract with NUMMI hourly employees (represented by the UAW) expires next month, so if there were ever a time to consider scalebacks, it's now.

Beyond the general economic problems impacting buyers and sales, Inaba indicated that the issued facing Toyota seem to be twofold. First there is a management problem -- namely that too many decisions have been made in Japan, rather than by the company's management team on the ground in the U.S. Inaba also indicated that customers seem ambivalent about Toyota's design aesthetic: "Toyota is a good car but not exciting. Those are the comments we usually (or) always get." Sounds to us like the company ought to consider following through on its veiled threat to bring back the Celica.

Comments

[MellowGuy:]

With one fourth of Toyota's sales being in the US, Toyota can't afford to shut down many plants in the US.

Jul 21 06:56 PM

[rajsekar:]

Richard - Your analysis is missing some key decisions that Watanabe took during 2004-05 period when Toyota was busy trying to outsell GM and Ford. As I have been commenting, San Antonio plant is Toyota's nail in the coffin. Toyota is currently having overcapacity in all their US plants, especially Indiana and San Antonio. The new Texas plant was a wrong move to assemble Tundras when Indiana plant had spare capacity to handle this. Watanabe was over confident that Tundra can woo F150 and Silverado owners. The next big hype is Prius and this hybrid dominance will be challenged by all electric plug-in cars coming from Nissan, Subaru and Chevy Volt. Consumers will flock to an all electric car, rather than buying a hybrid. For the same price of a Prius, you can buy Nissan's EV car which doesn't use gasoline. So the new Mississippi plant is another blunder. I am not certain if NUMMI closure will help Toyota, since Corolla and Tacoma are assembled in Canada and Mexico, where production costs are lower than Bay area. Moroever the US auto market and sales are contracting like never before and days of 9 million cars are gone. The fight for US auto is going to be brutal and Toyota will be left with excess manufacturing capacity and too many gas guzzlers. Well Watanabe wanted Toyota to beat GM, but he never expected that one day Toyota will become GM.

Jul 22 12:10 PM

[sethmcs:]

Toyota's rise was on the weak yen. Toyota's fall is the weak dollar. As long as the yen is less than 100 to a dollar Toyota will find that it is impossible to make money in the United States. The fact that they make boring generic car designs doesn't help either.

Aug 07 12:28 AM