DETROIT AUTO SHOW -- 2005

Toyota seeks more U.S. plants

Rapid growth spurs demand for SUVs

Originally published: Jan. 17, 2005

DETROIT -- Toyota Motor Corp. plans to add capacity in North America -- most likely for production of SUVs.

The company says it will move quickly. The fast climb in its U.S. sales is pushing Toyota to add capacity sooner than expected, said Yoshimi Inaba, senior managing director in charge of the Americas operations group.

Toyota shot past 2 million sales in the United States last year -- six years ahead of the schedule it says it set for itself in 1999.

Among the models Toyota is considering building here are the Highlander, 4Runner and RAV4, said Inaba. The three SUVs are now built only in Japan.

Inaba said Toyota prefers to add capacity in the United States rather than in Canada or Mexico.

"The safe bet is the U.S.," he said last week at the Detroit auto show. "We have too limited experience in Mexico, and while it is cheaper to produce in Canada, there are additional logistical costs there."

Inaba did not specify whether Toyota plans to build a plant or add assembly lines at existing plants -- or if it expects to add more than one new assembly location. But he said new engine and transmission plants would be part of any plan.

The best solution would be to build vehicles that share similar underpinnings on the same assembly line, Inaba said.

Toyota last year sold 133,077 Camry-based Highlanders and 114,212 Tacoma-based 4Runners in the United States. It also sold 70,314 Corolla-derived RAV4s, though Inaba said the company can do better than that in the small SUV segment.

"The Honda CR-V does more than 100,000 units, so we should too," he said.

Success came quickly

Inaba said Toyota's sales growth in the United States -- up 40 percent since 1999 -- has taken the company by surprise.

"Two million sales came much faster than we expected," said Inaba, who was president of Toyota Motor Sales U.S.A. Inc. before returning to Tokyo in 2003. "We have to catch up to this pace of growth. We are evaluating very quickly.

"We need to do it -- not just for political reasons but for business reasons," he added. "It protects us from exchange rate fluctuations, and it makes us nimble in meeting the market. It makes us more resilient."

In 1999, Toyota projected sales of 2 million vehicles annually in the United States by 2010. Inaba said Toyota now expects to reach 2.5 million in 2010.

Executives predict annual growth of between 3 percent and 5 percent -- which means at least 60,000 higher sales every year.

In the United States, Toyota has assembly plants in Georgetown, Ky.; Princeton, Ind.; and at NUMMI, its joint venture with General Motors in Fremont, Calif.

Toyota also has plants in Cambridge, Ontario; and Tijuana, Mexico, and will add a plant for full-sized trucks in San Antonio this year.

The Japanese carmaker built 1,155,792 vehicles in the United States in 2004, including Toyota models produced at NUMMI. North American production was 1,443,889.

When the San Antonio plant comes on-line annual capacity will grow by 150,000 units.

70% built in North America

Sales of 2.06 million Toyota, Lexus and Scion vehicles in the United States last year meant that 70 percent of U.S. volume was assembled in North America.

Toyota President Fujio Cho said last week he wants the percentage of the company's North American sales assembled in North America to rise to 75 percent.

Cho told journalists in Detroit last week that Toyota will decide by this summer where in North America to add production of a hybrid vehicle. But he was more cautious when talking about adding a new plant -- either for a hybrid or another vehicle.

"Once Texas comes onstream, and depending on the demand in sales, we will make a decision," Cho said. "Local production must be increased, and local content must be increased."

You can reach Mark Rechtin at mrechtin@crain.com

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