Toyota making US manufacturing changes

Published 6:42 pm Friday, July 11, 2008

Toyota Motor Corp., the seemingly unstoppable juggernaut that saw its U.S. sales double in the last decade, has come back down to earth.

Stung by rare double-digit sales declines and burdened by a growing inventory of slow-selling pickups, Toyota said Thursday it will start producing the Prius hybrid in the U.S. and will shut down truck and SUV production to meet changing consumer demands.

Toyota was the latest automaker to announce major production changes in response to lagging U.S. auto sales. Industrywide, sales have dropped 10 percent in the first six months of this year and are moving at their slowest pace in more than a decade. High gas prices have accelerated the drop in pickup and sport utility vehicle sales faster than automakers had predicted, and they’re scrambling to keep up with demand for smaller, more fuel-efficient cars.

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“Toyota isn’t immune to $4 gas and the recession in the housing market,” said Erich Merkle, an auto analyst with Crowe Chizek and Co., a Grand Rapids accounting and consulting company. “It’s almost as though Toyota always defies gravity, and in this case, they don’t.”

Toyota said the moves will not affect any full-time workers, who will get training and do other projects during the shutdown. But the company is laying off around 700 temporary workers at the affected plants.

Toyota said it will start producing the Prius in late 2010 at a plant it is building in Blue Springs, Miss., just northwest of Tupelo. Toyota already builds a hybrid version of the Camry sedan in Kentucky, but this will be the first time the Prius, which has been on sale for more than a decade, will be built outside of Japan and China.

Prius sales fell 34 percent in June as Toyota failed to keep up with demand for the car, which gets 46 miles to the gallon. Priuses are sitting on the lot for just four or five days before they’re sold, according to Tom Libby, senior director of industry analysis for the Power Information Network, a branch of J.D. Power and Associates. By contrast, the Toyota Tundra pickup is on the lot for 64 days before it is sold.

“Any additional Prius production is going to be extremely timely,” Libby said.

Toyota will suspend production of the Tundra pickup at its San Antonio truck plant and the Sequoia sport utility vehicle at its Princeton, Ind., plant for three months starting Aug. 8 because of declining demand. Next spring, it will stop producing Tundras in Princeton and will consolidate all truck production in San Antonio.

The Princeton plant, which is about 20 miles north of Evansville, will now make the Highlander SUV, which originally was scheduled to be made in Mississippi. The Princeton plant will continue to make the Sienna minivan throughout the shutdown, Toyota spokesman Mike Goss said.

Toyota’s U.S. sales fell 21 percent in June compared with the year before, an even steeper decline than the industrywide slump of 18 percent. While sales of the Sequoia were up, likely because the model was recently redesigned, Tundra sales fell 54 percent.

“We’re very pleased in North America that we got this decision made expeditiously, because we had a couple of factories where we weren’t utilizing the capacity and that’s a concern,” Goss said.

Officials in Mississippi cheered the announcement, even though it will delay the opening of the Blue Springs plant by several months.

“Mississippi thinks long term and in the long term this is a grand slam home run,” Gov. Haley Barbour said in a statement.

Toyota generally doesn’t lay off full-time workers during shutdowns, as U.S. automakers do, and this will be no exception. The San Antonio plant employs 1,900 people, while the Princeton plant employs nearly 4,500, although only 2,000 of those build the Tundra and Sequoia, Goss said. All will stay on the job, along with 891 workers in Huntsville, Ala., who make engines for the Tundra and Sequoia.

“In our view, we don’t just want to send everyone home because it makes for a bad startup condition when we start back in November,” Goss said.

Princeton plant spokeswoman Kelly Dillon said employees will be working on safety and quality improvement projects during the shutdown. Goss said some workers may also do volunteer projects.

Toyota has been dismissing temporary manufacturing workers who were employed at the plants, Goss said. The Princeton plant laid off 400 temporary workers last year, while the San Antonio plant will release 200 temporary workers by August. The Alabama plant also is laying off 70 temporary workers by August.

Goss said Toyota doesn’t yet have a cost estimate for the changes. Since there is no equipment in Mississippi yet, the primary new expense will be retooling the Princeton plant to build the Highlander.

“It’s not an inexpensive deal for us to do this, but we think long term it’s going to be a great investment,” he said.

Jim Schmidt, a director at the manufacturing research group Harbour Consulting Inc., said Toyota has some of the most flexible plants in the industry and should be able to convert them without major investments such as new robots or paint shops.

“That’s why when you see Toyota announce something like this, they can do it relatively quickly,” Schmidt said.

Toyota has 13 North American plants and two under construction in Mississippi and Ontario. The automaker has more than 43,000 workers in North America.

Toyota’s moves follow production cuts at General Motors Corp. and other automakers. GM said last month it is cutting shifts, reducing assembly line speeds and temporarily idling seven factories because of declining consumer demand for truck-based vehicles. Chrysler LLC recently announced plans to close a minivan factory and cut a shift at a full-size pickup factory, while Ford is cutting truck and SUV production, cutting salaried workers and ramping up production of the Focus small car.

Toyota’s U.S. shares rose 5 cents to $91.53 in late trading in New York.