Home / World / Toyota to Open Plants in China and Mexico

Toyota to Open Plants in China and Mexico

After years of soul-searching over an expansion policy that had led to quality lapsesToyota is ready to move on again.

The Japanese carmaker is planning to spend about Y150bn ($1.3bn) to build new plants in Mexico, to better target the US, and China in an attempt to capture growth in the world’s two biggest automobile markets, people familiar with the plans said on Friday.

Toyota joins rivals worldwide including VolkswagenGeneral Motors and Volvo in adding manufacturing capacity in North America. But the global build-up has been controlled in light of lessons learnt from a glut of supplies before the financial crisis of 2008.

The two plants are expected to increase Toyota’s annual production capacity by up to 300,000 vehicles, with facilities opening in China in 2018 and in Mexico in 2019, said people familiar with the company. The Toyota group last year sold 10.23m cars and trucks, narrowly topping the 10.14m vehicles sold by Germany’s Volkswagen.

The move follows similar moves by Swedish carmaker Volvo, which recently said it planned to spend $500m building a new factory in the US, while GM announced it would build its Chevrolet Cruze in Mexico. Last month, Volkswagen said it would invest about $1bn in its plant in Mexico to produce the new Tiguan compact.

Toyota’s latest efforts will mark an end to the Japanese carmaker’s three-year moratorium on building new manufacturing plants, which runs through March 2016

and follows efforts to simplify and streamline its plant-building. It last built a new factory in Thailand in 2013.

Analysts cautioned that this was a gradual process and not a radical ratcheting up in expansion strategy. “This does not mean Toyota is going to shift to an expansion policy. It will impose discipline on fixed costs and efficiency in capital expenditure,” said Masahiro Akita, an analyst at Credit Suisse.

Toyota will produce its Yaris subcompact cars at the Chinese plant which is expected to be built in Guangzhou, where the company already has a joint venture with Guangzhou Automobile Group. The next-generation Corolla sedan will be manufactured at the Mexican plant.

A management shake-up at Toyota this month signalled that the company was heading towards a phase of careful growth following a period that President Akio Toyoda has described as “intentional pause” to enhance profitability and quality.

The new executive line-up is unusually diverse with the inclusion of foreign and female executives. Mr Toyoda also brought in for the first time executives from its suppliers, and promoted a blue-collar factory worker to a senior role to strengthen manufacturing.

Mr Toyoda has blamed the pursuit of breakneck expansion — when Toyota had expanded its production capacity by 500,000 vehicles each year — for the massive recall of vehicles that began in late 2009.

“We want to focus on enhancing quality as opposed to pursuing scale. Ultimately, that will lead to vehicle sales,” Tetsuo Ogawa, deputy chief executive in China, said on Friday. He did not comment specifically on new plant plans.

Toyota is expecting a 6.6 per cent year-on-year rise in annual sales in China this year, but its market share is small at around 5 per cent and it lags behind VW and GM.

The Japanese company is also working to reduce costs and make car production more efficient through a revamped manufacturing plan using more common components among vehicles. It plans to produce half its vehicles by 2020 using the new platform.

Efforts to simplify and streamline plant-building have also reduced spending on new facilities by 40 per cent.

“I think we have arrived at a juncture where customers will forgive us for preparing for the next phase of growth,” said Yoichi Miyazaki, managing officer in charge of marketing and product planning.