Toyota Delays SUV Plant; More to Follow?

May 13, 2008
Long seemingly invulnerable to the ups and downs of the American automotive market, Toyota is suddenly getting sheepish about future programs. For one thing, the Asian automaker will delay the opening of a new sport-utility vehicle plant it had hoped to open next year in Tupelo, Mississippi.

Meanwhile, production at the plant will be trimmed back to an initial 120,000 vehicles, rather than the annual output of 150,000 the automaker had originally planned, according to a Toyota spokesman. The company could expand production later, depending on demand, the official added.

The news comes only days after Toyota revealed that the ongoing slowdown in the U.S. new car market would almost certainly result in a decline in global profits – the first time that’s happened in nine years. As a result, Toyota is looking at ways to shift its resources to emerging markets, such as China, India, and Russia, which it needs to help prop up its sales and balance sheet.

As it now stands, Toyota is anticipating a 27 percent drop in profitability, to 1.25 trillion yen, or $12 billion – a number that other manufacturers still can only envy. Its Japanese competitor, Honda, has also predicted declining earnings of 18 percent. And archrival General Motors recently reported massive losses, largely due to the downturn in the American market.

Toyota had been counting on steady gains in the States to help it surge past GM in the global sales sweepstakes. The U.S. carmaker eked out a narrow victory in 2007, but Toyota nudged past it during the first quarter of 2008.

Toyota’s plans for the Tupelo plant – which was to build a replacement for the Highlander, an SUV/crossover – reflect a variety of factors, starting with the broad downturn in overall U.S. sales, which are expected to dip by as many as 1 million vehicles in 2008. Making matters more challenging, Toyota isn’t the only manufacturer adding capacity in North America, where there is already enough factory space to produce about 17.4 million cars, trucks, and crossovers annually – but only estimated demand for about 14 million. Honda is adding a plant, as is Kia, the downmarket brand owned by Hyundai Motor Co. And other makers, such as BMW, are expanding existing operations.

If there’s a positive side, some makers are looking to North American facilities as a way to cope with the weakened U.S. dollar. BMW, for example, is expected to replace some of its current German imports with the expanded output of its Spartanburg, South Carolina, plant.

Toyota isn’t the only maker shifting resources out of North America, long the world auto industry’s prime profit center. BMW announced, recently, that it would divert product previously earmarked for the States. And even GM is considering where to focus itself. Not many years ago, North America accounted for 75 percent of the automaker’s business. Today, that’s down to around 50 percent and, said Vice Chairman Bob Lutz, that could soon drop to just 25 percent, as demand increases in booming outlets like China, Russia, India, and other emerging markets.

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