WSJ: For Toyota, New U.S. Factory Offers More Than Plaudits From Trump

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For Toyota, New U.S. Factory Offers More Than Plaudits From Trump

$1.6 billion plant could help auto maker boost production of trucks, SUVs in Mexico and Canada

TOKYO— Toyota Motor Corp.’s TM 0.81% move to build a new factory in the U.S. won immediate praise from President Donald Trump, but it is just one facet of a larger plan that also involves boosting production of high-margin trucks and SUVs in Mexico and Canada.

The company’s decision to open a $1.6 billion Corolla sedan plant with Mazda Motor Corp. elicited a positive tweet from Mr. Trump, who had pressured Toyota earlier this year to drop plans for making that model in Mexico.

The Japanese auto maker is betting a new production line in the U.S. offers bigger benefits long-term. First, the plant frees up Toyota’s capacity to boost output of high-margin sport-utility vehicles made in Canada and pickup trucks made in Mexico. It also positions the car maker to make a push in the fast-growing market for small crossovers that use the same underlying architecture as the Corolla.

It is a sign that Toyota President Akio Toyoda is bullish on in the U.S. market, where he sees continued growth at a time when the rest of the industry is bracing for a downturn.

Earlier this decade, Mr. Toyoda worried about overcapacity amid a global slump and put a moratorium on new factories. The company also sought to lower its U.S. profile after it drew Washington’s wrath over reports of unintended acceleration in its vehicles.

A new administration has changed the political calculus and global demand for vehicles has recovered from the 2008-2009 slump. U.S. sales set a record last year, propelled by strong demand for crossovers, SUVs and pickup trucks.

Toyota has relied heavily on sales of sedans, which have slumped in recent years and now account for less than half of all vehicle sales. Its U.S. market share has dropped from 16.2% in 2007, when it last announced plans for a new factory in Mississippi, to 14% currently.

But that may change as the company ramps up assembly of its most popular vehicles, such as RAV4 and Highlander SUVs.

“You’ll start to see the pendulum swing their way” as Toyota lifts output of those vehicles, said Joe Langley, an industry analyst at IHS Markit Ltd. “There’s a staggering amount of RAV4s or Highlanders they could grow [sales of] if they just had the capacity to do it,” he said.

Mr. Toyoda lifted his self-imposed freeze on capacity two years ago by announcing new plants in China and Mexico. The Mexican factory was the subject of President Trump’s scorn in January, when the company reacted by rebuffing the criticism and saying it would move ahead as planned.

Toyota now says it will reverse course by building a new U.S. plant for the Corolla. Mr. Toyoda denies Mr. Trump’s comments affected that decision, but within hours of Friday’s announcement, Mr. Trump tweeted: “A great investment in American manufacturing!”

Canada and Mexico also have reason to cheer. The company will stop making Corollas in Canada in favor of pumping out RAV4 SUVs, Toyota’s top-selling vehicle in the U.S., and is reworking the factory in Guanajuato, Mexico to nearly double production of Tacoma pickups in North America to 400,000 vehicles a year.

With the Mexico plant switch, “the production of pickups will be enhanced greatly,” Mr. Toyoda said at a news conference in Tokyo.

Toyota said it plans to open the new U.S. factory with Mazda by 2021, with the location yet to be decided. Eventually, the plant will be able to produce 300,000 vehicles a year and employ 4,000 people, it said. Half of those vehicles will be a new Mazda crossover.

In recent months, U.S. demand for vehicles has weakened, and industry experts now expect sales to continue to drift lower even as capacity remains elevated—especially at American companies such as General Motors Co.

Toyota was the only major car maker to increase its July sales in the U.S., on the back of high demand for its RAV4 and Highlander crossovers. It has struggled for much of the year to keep these popular vehicles in sufficient stock. To help feed the demand, Toyota has ramped up production at its current plants, adding 30,000 Highlander SUVs in Indiana.

While Toyota’s two current truck plants in San Antonio and Baja California, Mexico, are operating far in excess of their intended capacity, Toyota’s plants for the Corolla are producing tens of thousands fewer cars a year than they could, said Tokyo-based auto analyst Takaki Nakanishi.


The new production line will have the flexibility to produce other vehicles on the Corolla platform—potentially including the new CH-R that is mostly imported to the U.S. from a plant in Turkey—should sedan sales continue to decline. That vehicle is aimed at a growing market for compact crossovers. “What’s the growth segment of the future? I think it’s going to be entry-level crossovers,” Bob Carter, Toyota’s U.S. sales chief, said in an interview earlier this week. “That segment didn’t exist a couple of years ago, but I don’t think it’s a stretch that in three, four or five years out it’ll be a million” sales annually, he said. Additional models built off that architecture could include an electrified vehicle such as hybrid engine or fully electric vehicles, said Tetsuya Otake, a senior managing officer at Toyota. Mr. Toyoda and his counterpart at Mazda, Masamichi Kogai, said the deal was about more than ramping up U.S. production. The two will jointly develop a new electric car, and work on internet-connected vehicles. For Mazda, the plant provides a way to restart U.S. production and protect itself from exchange-rate volatility after it quit producing cars in Michigan in 2012, relying largely on exports from Japan. It also could provide protection in case the Trump administration makes changes to the North American Free Trade Agreement, as Mazda also makes some cars in Mexico. The deal involves each car maker taking a ¥50 billion ($455 million) stake in the other. That equates to a 5% stake in Mazda for Toyota, and a 0.25% stake in Toyota for Mazda. Also Friday, Toyota reported an 11% rise in net profit for the quarter ended in June. But the company still predicts a decline in profit for the year ending in March 2018.https://www.wsj.com/articles/toyota-mazda-to-invest-in-each-other-1501837532?mod=djemlogistics