Toyota Motor Corp. is at long last creating a self-sufficient automotive operation in North America. The move is not without risks, but it's the right thing to do.
President Akio Toyoda has set the company on a course that calls for giving operations outside Japan far more autonomy. Signs of the changes are increasingly apparent in North America. Lexus will expand output of the RX crossover in Cambridge, Ontario, adding production of the hybrid version there for the first time. Previously, about a fifth of RX vehicles sold in the United States were imported from Japan.
Other Japanese automakers also are expanding North American production. In recent weeks, Honda Motor Co. said it will boost output at its Greensburg, Ind., plant, including adding a second hybrid to the lineup of Hondas and Acuras built there. Mitsubishi Motors Corp. will use its Normal, Ill., assembly plant as an export base. Nissan Motor Co. is ramping up output of the Infiniti JX crossover -- the only Infiniti built in North America -- in Smyrna, Tenn.
But the moves by Toyota, traditionally the most cautious of the Japanese automakers, go beyond factory output. The 2013 Toyota Avalon is the automaker's first car to be truly developed in North America. The Avalon's American chief engineer and his team at the Toyota Technical Center in Ann Arbor, Mich., had to rely on Japan only for powertrain expertise as they developed the sedan. Later this year, the Michigan technical center will begin to build up the equipment and skills necessary to develop powertrains here, too.
Toyota's North American expansion reflects, in part, the pressures of a dollar-yen exchange rate that makes exports from Japan less competitive here, as well as the desire to reduce the risks associated with having production concentrated in earthquake-prone Japan. But there are risks in building up Toyota's engineering and production capabilities in North America as well.
Factories in the United States and Canada are not immune from natural disasters such as tornadoes or hailstorms. Longer term, setting up a self-sufficient operation in North America is a costly investment that leaves Toyota more exposed to the vagaries of this market. Who knows but that, several decades down the road, Toyota could face problems and losses in its North American business similar to what General Motors and Ford Motor Co. face today in their European operations?
Still, the payoffs of expanding in North America are real: reduced foreign-exchange exposure, shortened supply lines and the advantages of simply being closer to consumers, to name a few. Toyota will benefit from increasing its engineering and production on this continent. It's about time.