Summary
Toyota has faced criticism from California lawmakers, the U.S. Departments of Labor and Commerce and local government officials over its decision to close its California assembly plant. However, from Toyota's perspective, the decision makes sense.
Analysis
Toyota's decision to close its Fremont Calif., Corolla and Tacoma factory solves two, maybe three of the auto makers problems in North America.
1. It gets Toyota out of auto manufacturing in California:
Some auto makers bailed decades ago. Each of the Detroit 3 once made vehicles in the expensive, isolated and highly regulated state. GM gave up on its labor troubled plant in the early 1980s, only to reopen it in 1984 in a joint venture with Toyota called New United Motor Manufacturing Inc. GM abandoned the plant again this summer under cover of bankruptcy, leaving it to Toyota.
GM and Toyota together couldn't talk suppliers into parts plants in California. Over 25 years the number of NUMMI suppliers who set up shop near Fremont can be counted on the fingers of two hands. From a logistics viewpoint, the plant made more sense in 1984 when they were importing parts by sea from Japan. Now with Toyota's supply chain in the Ohio Valley, supplyling NUMMI became a pain in the neck.
2. It takes care of Toyota's problem in San Antonio:
Toyota built a $1.28 billion plant there in 2006 to supply Tundra pickups. It opened just as the full sized market plunged. The plant never came close to its ambitious capacity. Now Toyota is free to move its decent selling Tacoma pickups to San Antonio. One key supplier sees that as a quick solution to making the troubled plant viable.
3. NUMMI's demise could solve one other Toyota Problem, Tupelo Miss:
Toyota's plan to build a Prius factory in Tupelo Miss. has stalled, with an empty shell on the site. NUMMI's displaced Corolla could solve that problem, especially since Toyota executives say Toyota needs more Corolla production. Toyota prefers to have an untested work force (Tupelo) build a proven vehicle--say, a Corolla
Jack Sayer consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
