By all accounts, Toyota Motor Corp. is on a winning streak in North America.
Sales of Toyota, Lexus and Scion vehicles for the first five months are up 10.2 percent over the year-ago period. Market share is growing. And Toyota is poised to announce plans to build at least one new auto plant here.
But being a winner carries a certain degree of risk.
To grow in North America, Toyota is stretching its management ranks thinner.
It is moving deeper into big trucks at a time when high gasoline prices are putting a cloud over the segment. It is investing heavily in U.S. production and supply chains while its U.S. competitors are reaching for lower-cost materials from Asia.
And it is struggling to hold the line on the two things that have driven its growth here for the past three decades: product quality and plant efficiency.
Laurie Felax, vice president of Harbour Consulting in Troy, Mich., says that while Toyota remains one of the most profitable automakers - the profit is about $1,700 per vehicle - "they're struggling like everyone else."
"They've had some problems keeping up their edge on quality," Felax says. "As a result, you've seen their competitors close the gap to some extent. It's been no secret that Toyota feels like it lost some of its focus."
Toyota is juggling a number of projects in North America. Each represents another level of risk, either in dealing with new uncertainties or in complicating its existing mission.
Here is a look:
Toyota is spending $800 million to build a second Tundra pickup plant scheduled to open in 2006.
The project has twin missions. First, it must fortify the Tundra's brand image as a rough-and-tumble workhorse pickup.
Toyota believes that building the truck in Texas will enhance its appeal among buyers in that state, the nation's largest market for full-sized pickups.
Second, the project will give Toyota increased access to the Mexican parts market. Toyota lags far behind the Big 3 on sourcing content from Mexico. Company officials have made it clear that San Antonio will address that gap.
Toyota's supply chain will be somewhat untested. For the first time, Toyota is locating key suppliers on the factory premises. And seven of the co-located suppliers are newly created joint ventures with Texas-based minority-owned firms.
Toyota announced in May that its Georgetown Camry/Avalon plant will start building the company's first North American-made hybrid vehicles.
That will give Toyota almost 50,000 more hybrid vehicles at a time when U.S. Toyota dealers are clamoring for more of the cars. But it also will require U.S. plant workers to learn a new technology, according to Gary Convis, president of Toyota Motor Manufacturing Kentucky Inc.
"We're going to be engaged in a lot of training," Convis explained during last month's announcement. "It will be a more complex process.
"There are many more mounting studs, computer modules, wiring connections and unique parts needed to support this hybrid system," he said. "Assembling the batteries, converters and wire harnesses is very different from a conventional vehicle. Our quality engineers and inspectors will also be trained in the technical and performance nuances of this hybrid system."
Across Tennessee, Alabama, Missouri and West Virginia, Toyota is expanding production of engines, transmissions and engine components. Rising vehicle production in North America requires more investment in powertrains. That means setting up or expanding manufacturing locations. To get more engine blocks, Toyota's U.S.-based subsidiary Bodine Aluminum Inc. is spending
$164 million on a casting plant in Jackson, Tenn.
Toyota also is spending $250 million to double the size of its engine plant in Huntsville, Ala., to keep up with V-8 demand.
The engines will go into the San Antonio Tundras, as well as Tundras and Sequoia SUVs produced in Princeton, Ind.
Ann Arbor, Mich.
In April, Toyota unveiled a plan to spend $150 million on a new U.S. r&d center an hour's drive from Detroit. Toyota has operated its Toyota Technical Center U.S.A. Inc. for nearly three decades.
Toyota builds the Tundra in Princeton, Ind. The company will open a plant in Texas to handle additional production of the pickup.
A major point of the Ann Arbor project will be to free up r&d engineers in Japan who continue to support the North American market, according to Bruce Brownlee, general manager for corporate planning at the center.
Toyota needs those resources for other growing markets, including China. And the new North American self-sufficiency will require a different management structure to coordinate activity.
Back to basics
Over the past year, Toyota's North American plants have rededicated themselves to the company's venerable operating philosophy, the Toyota Production System.
One result is that two of Toyota's North American-made products, the Ontario-made Lexus RX 330 SUV and the Indiana-built Toyota Sienna minivan, led their vehicle segments in the J.D. Power and Associates 2005 Initial Quality Study.
But Toyota's stature as the industry quality leader is under attack. Through the 1990s, its plants jockeyed for the top three positions of the highest-quality plants in North America, according to Power. In 2000, Toyota held all three positions.
Convis points out that since 1990, Georgetown alone has won eight plant awards for quality. That's more than any other auto plant.
But this year, Georgetown's cars, the Camry, Avalon and Solara coupe, did not rank among the top three in any product segment in the Power data. All three of Power's top assembly plants are General Motors'.
Market watchers note that Toyota's competitors should be so lucky as to have Toyota's problems.
"They don't want the market to go too far in their favor," says Felax, the Harbour executive. "They're already capacity constrained. They don't have the plant capacity to handle a lot more business."
You may e-mail Lindsay Chappell at [email protected]