Betting billions on full-size trucks cost billions.
The big multi-billion dollar bet that Toyota made on full-size trucks in the U.S. market that resulted in big losses continues to unravel.
In the latest reversal, Toyota Motor Corporation (TMC) is spending another $147 million to install four-cylinder engine tooling at its under used V8 engine plant in Huntsville, Alabama.
The sales failures of the super-sized Tundra pickup truck and the Sequoia sport utility vehicles have left the plant working at about half of its capacity.
The latest expense comes at a time when Toyota is considering sweeping production decreases of 10% or more at its global factories and cutting costs by $10 billion in the current fiscal year, which began on April 1. Even so, it is projecting a $6 billion loss.
To accomplish the cost savings Toyota is also doing what was, after decades of sustained growth, unthinkable – closing plants abroad and in its home Japanese market. It is expected that as part of its retrenchment it will abandon its only unionized plant in the U.S., New United Motors Manufacturing Inc. (NUMMI) in California, even though California is its largest market in U.S.
The world’s largest carmaker appears to have little choice. Toyota Motor Corporation lost more than $815 million in the first quarter of its fiscal year, as revenues declined 38% when compared with its first quarter of last year.
The swing into negative numbers was breathtaking. Net income decreased from ¥353.6 billion to a loss of ¥77.8 billion or $4.52 billion. Major factors for the decline included ¥650 billion due to the effects of declining sales volume and mix, and ¥140 billion due to the appreciation of the Japanese currency, mainly against the U.S. dollar and the Euro.
Critics have maintained for years that the Japanese government manipulates the value of the Yen to subsidize its export driven economy, but the global Great Recession has upset that equation and, apparently, the ability of the Japanese government to keep the yen undervalued.
This recent Yen revaluation is behind the latest change production changes. Toyota Motor Manufacturing, Alabama, Inc. (TMMAL) will build 2.5-liter and 2.7-liter inline, four-cylinder engines so Toyota doesn’t have to continue importing them from Japanese plants as it currently does. An estimated 216,000 units annually will be built for use in the mid-size Camry model produced at Subaru of Indiana Automotive, Inc. and in the RAV4 compact SUV produced at Toyota Motoring Manufacturing Canada, Inc.
A Toyota subsidiary, Bodine Aluminum, Inc., will supply the cylinder heads and engine blocks for the engines, which requires an additional investment in Bodine of approximately $25 million dollars. It also means about 240 new non-union jobs at TMMAL and approximately 60 new non-union jobs at Bodine Aluminum.
TMMAL was established in 2001 as TMC’s first outside-Japan V8 engine plant. After starting production in 2003, it added V6 engines to its lineup in 2005, and, in January 2008, reached a cumulative engine production of one million units.
TMMAL was established in 2001 as TMC’s first outside-Japan V8 engine plant. After starting production in 2003, it added V6 engines to its lineup in 2005, and, in January 2008, reached a cumulative engine production of 1 million units.