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Toyota puts U.S. workers on alert: Made-in-Japan Camrys cheaper

Spanning a size equal to 169 football fields, Toyota's Georgetown, Ky., factory is the auto industry's second-largest assembly plant in North America by volume and Toyota's biggest in the world. The plant is now building the redesigned 2018 Camry, the first vehicle in North America to make the move to Toyota's New Global Architecture, as well as the Lexus ES and Toyota Avalon. Photo credit: LAURENCE ILIFF

UPDATED: 11/20/17 6:25 pm ET - adds details

Toyota Motor Corp. issued an unsettling warning to Kentucky workers building its top-selling Camry sedan: Cut costs now or face an uncertain future.

The automaker can build a Camry in Japan, ship it all the way to Kentucky and make more money selling that car than from one built at Toyota's factory in the state, the plant's president told employees in a 2 1/2 minute-long internal video obtained by Bloomberg News.

"I'm not sharing this to scare you, but to heighten your awareness of the current risk we now have," Wil James, who has managed the plant for more than seven years, said in the video dated this month. He said Toyota isn't planning to close the factory and continues to invest in it for the next 30 years. "But all of this is on the assumption that we can make as much progress in cost reduction and efficiency as we've made in quality and safety."

The video provides a glimpse into the cost-cutting drive spearheaded by President Akio Toyoda aimed at freeing up resources for a record research-and-development budget. While Toyota is spending heavily to cultivate electrification and artificial intelligence -- technologies that have the potential to transform the auto industry -- the company is squeezing its vaunted production system for more savings.

Earlier this year, Toyoda set up a cost-saving task force comprised of four executive vice presidents and charged them with ensuring any new outlays are funded from cuts to other programs. James said in the video that Kentucky workers would be hearing more about cost-cutting efforts over the next few weeks.

Spanning a size equal to 169 football fields, Georgetown is the auto industry's second-largest assembly plant in North America by volume and Toyota's biggest in the world. The company announced a $1.33 billion investment in the factory earlier this year to implement Toyota New Global Architecture, a more flexible production system that's underpinning almost every new model, from Prius hybrids to Toyota Highlander crossovers.

Toyota's Tsutsumi plant in Japan had a head start implementing the new production system, which helps explain why it's cheaper to manufacture the Camry there than in Georgetown, said Rick Hesterberg, a company spokesman.

"If you can make more profit from a Tsutsumi Camry than a Kentucky-built one, which plant would you pick to build it?" James said in the video message. He told workers they'll learn more about the cost gap and asked for "a lot more ideas to reach parity."

Political pressure

The message James delivered shows Toyota's U.S. operations are being included in the company's cost-cutting efforts even during politically sensitive times. President Donald Trump has pressured Toyota and its Japanese peers to locally produce more of the vehicles they sell in America.

After enduring a Twitter attack in January over its plans to build a factory in Mexico, Toyota let Trump take credit for the investment the company announced in Georgetown in April. Earlier this month, the president praised Toyota and Mazda Motor Corp.'s plan to build a $1.6 billion joint car plant at a still-undecided U.S. site.

Those projects add to the $45.6 billion in cumulative investment that members of the Japan Automobile Manufacturers Association have made in the U.S. through last year.

UAW supporters called Toyota's video an attempt to quell pro-unionizing sentiments at the Kentucky plant, which employs more than 8,000 permanent workers and about 1,500 temporary ones. Joe Smiddy, 43, who works in Georgetown's welding shop, said the video may have had the opposite effect -- encouraging unionization, rather than dissuading it.

"It actually made people mad," he said. "We've had a spike in the number of people coming to sign union cards."

UAW's push

The UAW has largely failed to organize Japanese, German or Korean automakers' U.S. plants. Workers at a Nissan Motor Co. factory in Tennessee voted against joining the union in August following a years-long organizing campaign.

"With this message Toyota is trying to make the choice not between joining a union or not, but between voting for a union or having a job," said Harley Shaiken, a labor professor at the University of California Berkeley.

Smiddy is a member of a committee of workers within the plant who are pressing the UAW to arrange a vote for the union to represent Georgetown employees. He declined to say how soon one may be arranged. Brian Rothenberg, a Detroit-based spokesman for the UAW, said he had no immediate comment.

Hesterberg, the Toyota spokesman, described the video message as routine and said it had no connection with the UAW campaign. "We're here for the long term," Hesterberg said. "In keeping with a long-term mindset, cost competitiveness is always top of mind."

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