Thursday, July 10, 2008

Toyota Significantly Changes US Production Plans

By Chris Haak


In response to the dramatic - and many believe permanent - shift in consumer demand for new vehicles (abandoning large gas guzzlers in droves and lining up on waiting lists for efficient vehicles such as the Prius and Civic), Toyota announced today that it has changed its vehicle mix and production plans at three plans quite drastically.

Currently, Toyota builds the Tundra pickup, Sequoia SUV, and Sienna minivan in its Princeton, Indiana plant and builds Tundras only at its fairly new San Antonio, Texas plant. The company also has a new plant under construction in Tupelo, Mississippi that was expected to build the Highlander SUV when it went online in 2010. Toyota had announced a few months ago that it would delay the opening of the Tupelo plant by several months in light of weaker-than-expected Highlander demand, plus the delay allowed Toyota to avoid having to do a model changeover at the plant just months after its opening when the Highlander receives its mid-cycle enhancement in 2010. Meanwhile, both the San Antonio and Princeton plants are operating at slower production speeds to keep vehicle inventories down.

All Tundra production will be moved from Princeton to San Antonio by spring 2009. Meanwhile, Toyota will stop Tundra and Sequoia production from August 8 to early November (about three months) to allow demand to catch up with the supply of the large trucks. Employees at Princeton and San Antonio, as well as at the Alabama plant that builds engines for the trucks, will not be laid off and will continue to be given work to do.

The extra capacity freed in Princeton by the Tundra's imminent departure will then allow Toyota to build Highlanders there, starting in fall 2009. The move makes sense on many levels, especially since the Highlander and Sienna aren't very different vehicles, and the Princeton plant is already a truck plant.

Since the Highlander is moving to Princeton, that means that Toyota has a billion dollar plant with no product for it. Enter the Prius, which has seen its sales drop for the past few months because of supply constraints. Toyota currently builds the Prius only in Japan, but will begin production in the new Mississippi plant in late 2010. The plant will have to be slightly reconfigured from its original mission of building relatively large crossovers, but once it comes online for Prius production - and assuming that Toyota can ensure an adequate supply of batteries for the car's demand. Since the company has made arrangements for a new battery plant in Japan that will go online in the next few years, that will probably not be a problem for Toyota.

Toyota has the advantage over its domestic rivals of not having huge amounts of idled workers and excess production capacity, but also has flexible production facilities that can build several models in the same plant, and can adapt (with some modifications) to building entirely different types of vehicles. I'm most curious what the Princeton and San Antonio workers will be doing with their time for three months starting in August. While Toyota probably has some quality control training and maintenance work scheduled for them, the plants will also probably have the cleanest floors in the auto industry.

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