Japan's top car manufacturer, Toyota Motor Corp., has finalized plans to build another plant in Canada, its seventh in North America, which will turn out subcompact cars. By the time the new plant is producing 100,000 to 150,000 subcompacts per year - as early as 2008 - Toyota's annual production capacity in North America will have increased to about 2.5 million vehicles, about 1 million more than 2004.
Toyota expects its worldwide output to rise to between 8.6-8.7 million vehicles by that time, second only to General Motors Corp. of the U.S., which produces slightly more than 9 million vehicles a year. Its ratio of North American to total output will rise from 20% at present to almost 30%.
The company plans to construct the seventh plant near its existing Canadian facility in the province of Ontario. The total capital investment is estimated at around 50 billion yen ($463 million). The automaker is considering manufacturing 1.5-liter-class cars, possibly models for its Scion brand, which is targeted at young consumers.
Toyota had considered building the factory in the U.S., but because profit margins for subcompacts are thin, it selected Canada, where labor costs are lower.
The major carmaker currently has five assembly plants in North America, producing mostly midsize sedans such as the Camry and small trucks. A sixth plant in the U.S. state of Texas is scheduled to begin producing pickup trucks in the fall of 2006. With the addition of the facility in Canada, the automaker's production structure in North America will cover its main lineup of models.
Eighth plant by 2010
Toyota also has started looking for a suitable site in the U.S. or Mexico for its eighth North American plant, which it plans to start building by 2010.
As of the end of 2004, about 60% of the cars Toyota sold in North America were produced there. President Fujio Cho has said that the company intends to raise this percentage to as high as 75%.
While GM and Ford Motor Co. have been suffering from poor sales, the combined market share of Japanese automakers in the U.S. surpassed 30% for the first time in 2004. The construction of a new Canadian plant is expected to contribute to the North American economy through increased capital investment, employment and parts purchases.
Toyota sold 2.06 million new vehicles in the U.S. in 2004, gaining 10% on the year to become the first firm outside of the Big Three carmakers to surpass the 2 million mark. It plans to increase this tally by 100,000 units annually over the next few years, according to a company executive.
By comparison, GM sold 4.61 million vehicles there, a decline of 1%.
While an expected output of 2.5 million vehicles in North America in 2008 would still trail GM's U.S. output of 3.58 million vehicles in 2004, and Ford's 3.01 million, if sales at the ailing U.S automakers continue to slide the competition could become a lot closer. In any case Toyota's production would race past DaimlerChrysler AG, which produced 1.69 million cars in 2004, making Toyota one of the top three local producers.
While Toyota hopes that increased local production will help prevent a revival of trade friction between Japan and the U.S., the question is whether what's good for Toyota is good for North America.
In 1984, Toyota began assembling cars in North America through a joint venture with GM. Toyota has a total of 11 manufacturing facilities in North America, including its five vehicle plants, and it employs more than 200,000 workers, including those at dealerships.
Toyota funnels a large portion of the profit it generates in North America back into local infrastructure, including education and environmental programs. "We will continue efforts to win recognition as a U.S. company," President Cho has said.
Amid intense sales competition with its rivals, Toyota is deepening its local ties in development and production. For example, while providing basic technologies for hybrid vehicles to Ford, Toyota is considering establishing a fuel cell joint venture with GM.
For Toyota to be recognized as a North American carmaker both in name and reality, it will need to find the right balance between competition and cooperation.