Toyota said to assess California plant closure costs

Toyota Motor Corp. is assessing the cost of shutting a California auto plant previously shared with General Motors Corp. and is leaning toward closure instead of funding the factory on its own, two people familiar with the plan said.

The unprofitable carmaker is likely to close New United Motor Manufacturing Inc. since the cost of keeping the factory open will rise, said the people, who asked not to be identified because the plan isn’t public.

Toyota, the world’s largest carmaker, was already grappling with excess North American assembly capacity when bankrupt GM junked the 25-year-old joint venture June 29. Severance packages for the factory’s unionized workers would be a substantial portion of the overall closing cost, one of the people familiar said.

Mike Michels, a spokesman for Toyota’s U.S. sales unit, said the company hasn’t made a decision on the fate of the Fremont, California, plant, known as Nummi.

The company said on July 10 it “must seriously consider dissolving the venture under the current business environment.”

While Toyota officials have declined to say when a decision on keeping or closing the plant will be made, it could come as early as next week, said one of the people.

Toyota fell 0.9 percent, or 30 yen, to close at 3,470 yen in Tokyo trading. The shares have risen 19 percent so far this year.

U.S. Woes
In the U.S., Toyota’s largest source of revenue, the Toyota City, Japan-based company’s sales fell 38 percent in the first half, following a 15 percent decline last year. Toyota had a record 436.9 billion yen ($4.7 billion) loss in the fiscal year that ended in March, its first in six decades, and forecasts an even bigger 550 billion yen loss in the current business year.

Vehicle production at Nummi is down 47 percent this year through July 11, according to trade publication Automotive News. Toyota, which has never closed a factory at home or abroad, has cut output at plants in the U.S., Canada and Mexico 44 percent this year, based on Automotive News data. Nummi employs 5,400 people, including 4,550 United Auto Workers union positions.

Nummi, the only large auto-assembly plant on North America’s West Coast, has the capacity to make 420,000 cars and pickups each year. It only made money in 1992, the result of California’s taxes and labor and pollution rules, as well as the plant’s UAW contracts, according to an estimate by Tokyo-based Credit Suisse Group AG analyst Koji Endo.

Looming Costs
By 2012 California is to begin a program aimed at cutting greenhouse gas emissions linked to global warming by 30 percent. Business groups in the state including the California Chamber of Commerce and California Small Business Roundtable have said the program will boost energy and other expenses for companies in the state.

Toyota, third in North American auto output this year behind Ford Motor Co. and GM, has capacity to make about 1.95 million cars and trucks a year at eight plants in the region, including Nummi and a line it uses at affiliate Fuji Heavy Industries Ltd.’s Subaru plant in Indiana.

In December, Toyota idled construction of a ninth assembly plant in Blue Springs, Mississippi, that was to make Prius hybrids by 2010. The company has said the factory won’t open until U.S. conditions rebound.

To contact the reporters on this story: Alan Ohnsman in Tokyo at aohnsman@bloomberg.net Kae Inoue in Tokyo at kinoue@bloomberg.net

Bloomberg