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Will Health Care Reform Pass?
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Nintendo's Mario endures even as games come and go
Japanese automaker confronts same challenges Detroit faces on bigger scale
By Christine Tierney
Detroit News
Published on Tuesday, Aug 19, 2008
In the first six months of the year, Toyota's U.S. sales executives watched with alarm as demand tumbled for one model after another in the lineup. First it was the big Tundra pickup, then large SUVs and luxury models and by June, demand had slipped even for midsize, car-based sport utilities like the Highlander that Toyota was preparing to build at a new plant in Mississippi.
Toyota's manufacturing specialists had ordered the tooling and assembly equipment to produce the Highlanders, but the machines had not arrived. The factory outside Tupelo, Miss., consisted of four walls and a roof.
At that moment, Toyota executives saw an opportunity to make a swift adjustment to their North American production network, which was producing more trucks and SUVs than consumers wanted to buy.
For the first time in its 50-year history in the United States, the Japanese automaker was confronting the same challenges that Detroit's automakers face on a bigger scale. ''This is a shift of monumental proportions that we have never seen before,'' said Jim Lentz, president of Toyota Motor Sales USA.
Toyota's experience and its response reveal much about the company, reinforcing some perceptions but challenging others. Japan's biggest automaker didn't foresee the dramatic changes in the market any more than rivals did. And its factories were not as flexible as many believed. It was running out of small, fuel-efficient models, while dealers were saddled with trucks that weren't
selling.
But within six weeks of concluding that it needed to adjust its output, Toyota had revised production plans for at least four factories, including the Mississippi plant, which will now make the popular Prius hybrid.
Toyota has halted large truck and SUV production at its plants in Princeton, Ind., and San Antonio, Texas, for three months but has not laid off any permanent workers. The 4,500 idled workers will receive more training in vehicle-assembly techniques, and some Texas team members might end up removing graffiti from walls in downtown San Antonio.
The tooling for the Highlanders will be shipped to the Indiana plant. The factory will build the Highlanders, as well as big Sequoia SUVs and Sienna minivans. It had produced Tundras, but Toyota is scaling back assembly of big pickups to a single plant, in San Antonio. ''It's a segment that's going to be in difficulty for some time to come,'' Lentz said.
Dealers, analysts and even employees were surprised at how fast the company moved.
''It was nice to see Toyota respond so immediately,'' said Dianne Whitmire, Internet and fleet sales manager at Hooman Toyota in Long Beach, Calif.
Compared with Japanese rivals Honda and Nissan, Toyota is typically more cautious and deliberate — often the last to enter a market or a new segment. The production adjustments announced July 10 required close consultations and cooperation among Toyota's U.S. manufacturing executives in Erlanger, Ky., its U.S. sales managers in Torrance, Calif., and manufacturing and top executives in Toyota City, Japan.
''Toyota was probably making sure that the changes in the market had a high probability of being structural as opposed to being cyclical,'' said Michael Robinet, vice president for global forecasting at CSM Worldwide in Northville, Mich.
In its first-quarter results issued two weeks ago, Toyota said it was spending $95 million to cover most of the cost of the adjustments. But the changes will pay off in the future. By reducing its bulging truck inventories, Toyota will spend less on incentives.
More important, it will save money because the changes will raise the output of the factories. Analyst Takaki Nakanishi at JP Morgan Securities Japan estimates the moves will increase their capacity-utilization rates to 86 percent from 65 percent.
Toyota officials said falling U.S. sales and discounting contributed to an earnings decline this year. Toyota's profit for the April-June quarter fell 28 percent to $3.2 billion. Its earnings fell in the previous quarter, too, and Toyota expects annual profit to decline for the first time in seven years.
''For the rest of the auto industry, it's daunting to have Toyota rethinking its strategy when they have time and cash,'' said Maryann Keller, analyst and head of Maryann Keller & Associates of Stamford, Conn.
Now the No. 2 player in the U.S. market behind General Motors, Toyota expects its sales to fall this year — but not as much as the market as a whole. So far, Toyota's U.S. sales are down 7.6 percent, compared with the overall market's 10.5 percent decline. ''The priority is that we will continue to grow share,'' Lentz said.
In the first six months of the year, Toyota's U.S. sales executives watched with alarm as demand tumbled for one model after another in the lineup. First it was the big Tundra pickup, then large SUVs and luxury models and by June, demand had slipped even for midsize, car-based sport utilities like the Highlander that Toyota was preparing to build at a new plant in Mississippi.
Get the full article here.
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