Toyota: Closing U.S. Plant


Toyota announced that it will be closing one of its US manufacturing plants as cost-cutting measures are being taken to secure the automaker from major losses. The plant only made money in 1992 and has an estimated annual salary and benefits package of over $520 Million.

Toyota’s sales in the U.S., its largest source of revenue, fell 38 percent in the first half, following a 15 percent decline last year. Toyota had a record 436.9 billion yen loss in the fiscal year that ended in March, its first in six decades, and forecasts an even bigger 450 billion yen loss in the current business year.

“By closing the plant and moving production to other factories, Toyota’s utilization rate in North America will improve,” said Masatoshi Nishimoto, an analyst at auto consulting company CSM Worldwide in Tokyo.

Nummi has the capacity to make 420,000 cars and pickups each year. It only made money in 1992, the result of California’s taxes and labor and pollution rules, as well as the plant’s UAW contracts, according to an estimate by Credit Suisse Group AG analyst.

Toyota has about 2 million units of capacity in the U.S. and about 10 million units globally. The Nummi closure will reduce capacity by about 400,000 units. Earlier this week, the carmaker said it will shut an assembly line at a domestic factory from 2010 to 2011.

This is bad news for the US auto market to be sure but why post the story here? Because much talk and rumor mongering has been taking place over the last few months about the possibility of Toyota following Honda and now BMW out of the series. The losses experienced by Toyota, although one of the larger benefactors of the US’s recently-expired “Cash-for-Clunkers” program, is enormous and just adds fuel to the thought of the venerable car maker leaving Formula 1.

It is clear Toyota are suffering similar profit losses as BMW and Honda are but will it be able to justify the F1 expenditure in the face of laying off 5,000+ workers? Can it argue the veracity of an F1 program in light of suffering of its employees?

Each program within Toyota, I am making outlandish assumptions here, must sustain its own P&L and I suspect that while the F1 program may be running leaner and relying less on Toyota HQ to fuel its balance sheet; perhaps even successful, semi-successful programs within Toyota are on the chopping block when it comes to the core business taking large losses.

For arguments sake, perhaps the Toyota F1 program is breaking even or profitable but Toyota’s core business is making and selling cars so ultimately the motor sport program is a very expensive marketing branch of the core business. Unlike many marketing divisions, this on has it’s own P&L and is a revenue generator (presumably). So what is the decision? Can F1 program that is break even (we are assuming this for our argument) be part of the cost cutting to save the core business? The answer is most likely, yes.

What are your thoughts? Saving $500MM in California will help the balance sheet but that may be an approximate savings amount for canceling the F1 program as well. A billion savings goes a long way and the balance sheet but it is a sad day at Nummi and F1 should they choose to eliminate both programs.

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