Tuesday, May 13, 2008

Toyota Will Open Its Mississippi Plant Later Than Planned

By Chris Haak


Toyota announced yesterday that it will open its newest North American factory, which is under construction in Tupelo, Mississippi, about five months later than originally planned. The plant had been expected to go on-line in either late 2009 or early 2010, but now the target launch is May 2010.

The plant was expected to build 150,000 Highlander crossovers per year, and its initial production capacity will also take a haircut, down to 120,000 vehicles. It's an interesting development because Highlander sales are actually UP 5.2% year to date during 2008, and fell only 1.5% during 2007 (and all of that decrease was attributed to the Hybrid model, which lost 30% of its sales during 2007). However, it's also not entirely surprising, because Toyota has some spare truck production capacity in the US at the moment, with its Princeton, Indiana and San Antonio, Texas plants churning out Tundras far below their capacities.

Toyota is actually fortunate that it is able to not open a new unneeded plant rather than being forced to shutter an existing facility, as all three of the domestic automakers have been forced to do several times over the past few years. Although automobile manufacturing efficiency depends in large part upon operating a plant at or near capacity (and sometimes slightly over it) for the facility to be profitable, Toyota has typically been able to manage this better than most. However, they did drop the ball in predicting demand for the new-for-2007 Tundra, against the backdrop of all of its major competitors being all-new within two years, plus record-setting fuel prices. It's still possible, of course, that Toyota will be able to eventually use some of its extra Tundra manufacturing capacity if the US economy, and more importantly the full-size pickup market, rebound in the coming year.

Back to the incomplete Mississippi facility, though: Automotive News reported today that other than the soft US auto market, Toyota also had other obstacles in the way of an earlier opening of its Mississippi plant: the company was having trouble recruiting skilled manufacturing workers, and the plant's original opening schedule would have forced it to build the current Highlander very briefly before switching over to the mid-cycle updated version.

Toyota's recruiting troubles are nothing new; they had similar problems at the aforementioned San Antonio facility that now builds the Tundra, but they did not delay the truck's launch. However, it may be a larger problem this time, because Toyota has decided that in order to keep its costs down, it will no longer pay workers close to the UAW pay scale, but more in line with local manufacturing wages instead. Instead of offering a new assembly worker $30 per hour plus benefits, they get $15-17 per hour with benefits. While that's still a half-decent starting wage, it's also not $30 per hour. On top of the obvious pay difference, Toyota is also running the risk of irritating its workers to the point that they feel they could do better financially with UAW representation; when Toyota was paying roughly the same as GM, Ford, and Chrysler, the UAW couldn't really offer a compelling reason for the workers to organize. It would certainly be an ironic twist if Toyota's attempt at labor cost savings resulted in higher labor costs because some of their lower-paid workers decided to vote for UAW representation.

Toyota already has a lot of production capacity in the US, and with the falling dollar, I'd actually be fairly surprised if the company didn't eventually shift more vehicle production from Japan to the US as the dollar continues to remain weak against other currencies. Many other manufacturers are bulking up (or initiating) plans to build cars and trucks in the US, mostly for cost reasons, so surely a company with Toyota's fiscal intelligence is aware of the cost advantages and will find a way in the next year or two to get its plants up to capacity, including the new one.

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