Now it's Toyota's turn in the crucible

After some artful dodging to avoid the heaviest blows from COVID-19 and the global microchip shortage — bobbing and weaving to briefly jump ahead of General Motors to lead U.S. market share — Toyota Motor Corp., its North American subsidiary and its retailers are about to take it square to the chin.

Globally, the automaker said last week it expects to lose about 360,000 vehicles of production in September — a 40 percent hit. In North Am- erica, output is expected to be cut up to 170,000 through the end of next month: an estimated 60,000 to 90,000 vehicles in August and 80,000 in September.

Toyota and Lexus dealers, who have seen Toyota Motor North America's U.S. sales soar 43 percent through July while getting by for months with some of the leanest inventories in history, will see that trickle of vehicles dry up further.

"This will be a little bit of a setback, but it's something we've been dealing with all year," says Doug Eroh, president of Longo Toyota in El Monte, Calif., the brand's largest U.S. dealership. "Historically, we've carried anywhere from 1,500 to 1,800 new cars on the lot at any given time, but for the last four months, we've started each month with 200 new cars in stock. That's made it a slightly different business model, but in a lot of ways, it's better."

Toyota had managed to avert major assembly disruptions thus far by stockpiling chips, a practice dating back to the 2011 tsunami and Fukushima nuclear disaster in Japan. However, supply chain problems and the pandemic continue to stubbornly grip the auto industry.

The company is not alone in announcing crisis-related developments. Last week:

• Ford Motor Co. said that it will halt building its profit-driving F-150 pickup at its Kansas City plant for a week.
• General Motors said it will add downtime at several crossover and sedan plants, and also plans this week to idle Orion Assembly in suburban Detroit, which builds the Chevrolet Bolt EV and EUV. It is the first time the chip shortage has impacted the automaker's EV production.
• Mercedes-Benz dramatically scaled back its portfolio of high-profit 2022 model-year V-8 models to just two S-Class trims for the time being.
• Volkswagen Group said its Wolfsburg, Germany, plant will restart with only one shift this week, and Audi will extend its summer break by one week at its two factories in Germany as the chip situation remains "volatile and tense."

In addition, Nissan Motor Co. this month said it would idle its Smyrna, Tenn., plant for two weeks because of a COVID-19 outbreak at a microchip supplier plant in Malaysia.

Toyota's North American production cuts will impact all of Toyota's assembly plants in the U.S., Mexico and Canada except for the San Antonio factory, which produces the midsize Tacoma pickup and is preparing to launch the next-generation full-size Tundra.

"Due to COVID-19 and unexpected events with our supply chain, Toyota is experiencing additional shortages that will affect production at most of our North American plants," Toyota Motor North America said in a written statement last week. "While the situation remains fluid and complex, our manufacturing and supply chain teams have worked diligently to develop countermeasures to minimize the impact on production. ... We do not anticipate any impact to employment at this time."

In Japan, the cutbacks will affect 14 Toyota assembly plants and 27 of 28 production lines there. Toyota said it expects to lose about 140,000 units of production next month in its home nation, on top of 20,000 lost through August. The affected U.S. models include the Venza and Prius, Toyota Motor Corp. said. Also impacted is the Tahara plant that makes the Lexus LS, IS, RC, RC-F and NX models.

Toyota did not specify the supplier or the parts that triggered the latest round of suspensions."The latest news from Toyota reinforces downside risks and prospects of a weaker second half of the year for the global light-vehicle market," said David Leggett, automotive analyst at GlobalData, which now projects global light-vehicle sales to come in at 84.7 million. That would be up 12 percent over 2020, but still down nearly 5 percent from 2019.

"The pandemic is clearly far from over and appears, as far as the auto industry's recovery path is concerned, to have a sting in the tail," Leggett said.

In an email to dealers shared with Automotive News last week from Southeast Toyota Distributors, the automaker's largest U.S. distributorship, it counseled dealers to make the most of their allocations. Southeast Toyota distributes Toyotas to 177 dealerships across Florida, Georgia, Alabama and the Carolinas.

"Due to the uncertainty of future production dates, TMNA has provided guidance to exclude North American production weeks from tonight's [mid-month] allocation," the note said. "We will continue to assess the stability of future build weeks and will postpone allocating unbuilt production until we have a higher level of confidence in the supply chain."

The note goes on to detail a revised allocation pool consisting of just 1,830 vehicles "solely comprised of confirmed production [completely built units] already in transit to our Vehicle Processing Centers."

Toyota Motor North America began August with 139,600 vehicles in dealer inventory or on the way to dealers, with 26,900 of those being Lexus vehicles and the remainder wearing a Toyota badge, according to the Automotive News Research & Data Center. That gave Lexus a 23-day supply and Toyota a 16-day supply of new vehicles.

The company sold 225,022 new vehicles in the U.S. in July, and 191,842 in August 2020. In the second quarter, it narrowly outsold GM on the automaker's home turf — 688,812 to 683,696.

Robby Findlay, chairman of the Toyota National Dealer Council, said the brand's dealers and their customers have come to understand shortages and learned that there's not much they can do.

"In this new COVID world, we all understand that there's going to be hiccups in the supply chain. We all have confidence that TMNA is going to get us as many vehicles as they can as fast as they can," said Findlay, an executive with Findlay Automotive Group, which has three Toyota dealerships in Arizona and Nevada. "The dealer body? We get it. We get that this is going to continue at least through the end of the year. We've just got to sell what they give us."

Findlay said that consumers have grown accustomed to dealing with short supplies in almost everything, including vehicles, because of the continuing effects of the pandemic.

"Customers get that there are shortages in all aspects of their lives, from toilet paper and now to vehicles, and they've become pretty understanding," Findlay said. "But the fact that we're all going through it together, all of the manufacturers, that makes it a little easier to explain and understand."

Hannah Lutz and Reuters contributed to this report.