Toyota to expand in Mexico, China

GUANAJUATO, Mexico—Opening its purse after a three-year expansion freeze, Toyota Motor Corp. said it plans to spend nearly $1.5 billion on a new factory in Mexico and a new line in China to support sales growth in key markets and underpin a global overhaul in the way it builds vehicles.

The new facilities will deploy low-cost manufacturing processes and be the first in the world designed and built from the ground up to handle Toyota's new modular platforms.

Together, the expansions will boost Toyota's global capacity by 300,000 vehicles a year, from around 9.8 million units. That will give the world's biggest automaker more wiggle room on a tight global utilization rate pushing 90 percent. That compares with 70 percent in 2009.

The $1 billion Mexico plant will be in the central state of Guanajuato and make the next-generation Corolla small car. It will open in 2019, with a capacity of 200,000 vehicles a year.

In China, Toyota will invest about $440 million to add a third line to its plant in Guangzhou. That will start in 2017, adding 100,000 units of capacity, Toyota said in a statement.

The factory blitz is part of a global shift in the automaker's manufacturing strategy aimed at cutting the resources needed to produce new vehicles by 20 percent. The effort includes developing a new generation of platforms that will underpin half of Toyota's lineup by 2020.

It breaks the three-year “intentional pause” on greenfield sites ordered in April 2013 by President Akio Toyoda. During the moratorium, Toyota eked out more capacity from existing plants, while laying the groundwork for the new modular vehicle platform and efficient manufacturing processes. The goal: Take a breather to focus on lowering costs and improving quality.

“This strategic re-thinking of how and where we build our products will create new opportunities for our company, our business partners and our team members across the region,” Jim Lentz, CEO of Toyota North America, said in a statement.

The Mexico factory goes online in time to build the new Corolla due the following model year. The factory will employ about 2,000 people and will able to produce 200,000 vehicles a year.

Toyota did not say what vehicle will be built on the new China line.

The Guangzhou factory's two lines, operated with Toyota's local joint venture partner Gaungzhou Automobile Group Co., currently have annual capacity of 360,000 units.

They produce the Highlander SUV, Camry sedan and Yaris small car, among other vehicles.

The China move lifts Toyota's total capacity in the world's biggest auto market to 1.1 million units. Last year, its five plants in China produced 960,000 vehicles.

The Mexico-made Corolla will share its new modular platform with other small, front-wheel-drive cars in Toyota's lineup, including the new Prius expected later this year, and the Lexus CT.

Toyota's effort, dubbed Toyota New Global Architecture, groups the production of similarly sized vehicles together. It is similar to modular platforms used by Volkswagen Group and Renault-Nissan Alliance.

By increasing the number of shared parts and simplifying the manufacturing process, Toyota expects to cut the investment needed for a new production line in half, and the costs of building a new plant like the one in Guanajuato by 40 percent.

“The competitiveness will increase by leaps and bounds,” said a Toyota manager involved with the expansion. “We want to make qualitative as well as quantitative improvements.”

Today's announcements shows Toyota was working hard behind the scenes during its pause, said Kurt Sanger, an auto analyst with Deutsche Securities Japan. “They were not just sitting on their thumbs,” he said. “They are changing their way of production.”

The Toyota official said they picked Mexico and China as sites because North America and China are expected to see sustainable growth in the long term.

The Mexico plant will be Toyota's largest investment in that country to date, and only its second factory there. Currently, Toyota has a plant in Tijuana that builds the midsize Tacoma pickup.

Toyota hasn't set a date for groundbreaking at the Mexico plant, according to a spokesman. The factory is also part of Toyota's work to centralize North American production geographically.

Currently, Toyota has two North American plants where it builds the Corolla: Cambridge, Ontario, in Canada, and Blue Springs, Miss. Once the Mexico plant is running in 2019, Toyota plans to switch the existing Corolla plant in Canada to a yet-to-be determined midsize vehicle.

According to a report in the Globe and Mail, Corolla production is being moved to Mexico because of lower costs. Sources told the Globe and Mail that it makes sense to produce more expensive vehicles in Cambridge and Woodstock, also in Ontario, because costs there are more than they are in the U.S.

This would mean Toyota's North American production would be organized more geographically to cut assembly times and boost the efficiency of its supply chain.

Midsize vehicles such as the Camry, Avalon, Highlander and Lexus ES and RX would be built in plants in Kentucky, Indiana, and Ontario, Canada.

Pickups are and will continue to be built in Tijuana, Mexico, and San Antonio. Compact cars will be built in the new Guanajuato plant and Mississippi.

Toyota is just the latest automaker to add production to Mexico recently. Honda, Nissan and Mazda have all opened major plants in the country in the last two years.

In 2016, Kia will open a new $1 billion factory, while Volkswagen will spend the same amount to expand an existing factory. And later this week, Ford is expected to announce a $2.5 billion investment in a pair of Mexican factories that will produce diesel engines and transmissions. Hyundai has said it wants to build a factory in Mexico once the company's domestic sales rise.

Toyota's expansion in China also keeps pace with similar rollouts by rivals, even as overall market growth there slows. Hyundai broke ground this month on its fourth plant there, and later this year, it will begin construction of its fifth factory.

“If you're an auto company planning for the future, you have to build in China,” Sanger said.

Toyota stumbled with other Japan brands in China following a 2012 backlash against Japanese products triggered by a territorial dispute between Tokyo and Beijing over islands in the East China Sea. Today, its sales in China trail those of Volkswagen, Hyundai, Buick and Ford.

But the Toyota brand is still the No. 1 Japan make in the country.