DENNIS SEID: Toyota has reasons for building elsewhere

DENNIS SEID

DENNIS SEID

Last week, President-elect Donald Trump tweeted that if Toyota goes ahead with plans to build the Corolla sedan at a new factory in Mexico instead of the U.S., it could be hit with a “big border tax” when the cars are shipped north.

But Toyota – and other automakers – have their reasons for spreading the wealth when it comes to building cars.

The Corolla, as most people in Northeast Mississippi know, is assembled in Blue Springs (as well as in Ontario, Canada). Since October 2011, Toyota Mississippi has built more than 800,000 of the compact cars. Some time late this year, it will hit the 1 million mark.

In 2016, Toyota sold 360,483 Corollas in the U.S. alone. The Corolla is the world’s best selling car, having had more than 40 million sold during its 50-year history. Blue Springs and Canada supply the North American market.

Toyota Mississippi also exports Corollas to 18 countries.

Last April, Toyota said it would invest about $1 billion in a plant in Mexico it would open in 2019 to build the next-generation Corolla. The company already has a plant there, as well as suppliers.

In a statement, the automaker said it has invested more than $21.9 billion in its U.S. operations, including 10 manufacturing facilities, 1,500 dealerships and 136,000 employees. In Blue Springs, it has invested $800 million, and the plant employs about 2,000 workers.

Of course, we would love Toyota to double its capacity and employment in Blue Springs, but hopes and dreams don’t always align with reality.

And in this case, the reality is that Toyota made a business decision to build where it’s cheaper to do business. The company also is rolling out what’s called the Toyota New Global Architecture, described as “a comprehensive approach to achieving sustainable growth by making ever-better vehicles more efficiently.”

It’s not a cheap proposition, however. Like any company, Toyota is looking for ways to cut costs and improve profits. Cheaper labor is a sure way to do that.

Toyota also reiterated that no jobs in the U.S. are being lost because of the plant opening in Mexico.

Diplomatically, Toyota said it “looks forward to collaborating with the Trump administration to serve in the best interests of consumers and the automotive industry.”

As gas prices have remained relatively low, demand for high-margin SUVs and trucks has risen, tamping down demand for more fuel-efficient cars like the Corolla. Keeping costs low for the Corolla is a must.

Toyota has divided its manufacturing operations into three regions or tiers, and the southern tier consists of the new factory In Mexico and Mississippi.

Said Reuters, “Grouping types of vehicles geographically can be more efficient in many ways. Parts suppliers can locate near the groups so components common to all the models needn’t be shipped as far. Executives and managers can travel among the factories building related models quicker and more easily.”

A businessman like Trump should appreciate efficiency like that.

Contact Dennis Seid at (662) 678-1578 or dennis.seid@journalinc.com

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  • Mark Wright

    But the trouble is that Donald Trump is a real estate businessman. Real estate doesn’t make heavy use of Kaizen and I’d bet that Trump thinks the Toyota Way is a road in downtown Tokyo. Forcing industries to shift production from low cost countries back to the US will have serious repercussions. Firstly, the wages paid by the relocated businesses will be lower in a bid to maintain profits. Secondly, the US will have to pay sweeteners in the form of development grants or tax waivers to encourage businesses to move. Thirdly, unemployment in the US was standing at around 5%. There may not be adequate labor in the areas that these relocated business wind up in to sustain them, particularly if the Trump plans on removing all illegal workers comes to fruition. Trump says there are 30 million illegals in the US. That’s about 10% of the US population. Allowing for half of them to be kids, that means ejecting them removes 5% of the workforce.
    So creating more unfilled jobs in the US is counterproductive.