September 18, 2018

Toyota and Mazda Choose Alabama for $1.6 Billion Car Plant

“Demand has leveled off, so now it’s a battle over market share,” said Ron Harbour, an auto manufacturing expert at Oliver Wyman, a consulting firm. “And somebody’s going to lose.”

Bob Carter, executive vice president for vehicle sales for Toyota Motor North America, shrugged off any concerns about the new plant’s prospects. “A plant is a 50-year investment,” he said. “You can’t make plant-investment decisions based on the business cycle.”

The plant will make a redesigned version of the Corolla compact, one of Toyota’s top-selling models. The car is also made 140 miles away in Blue Springs, Miss. Mr. Carter said the proximity of the two Corolla plants could allow them to share many suppliers.

Still, fewer and fewer consumers are shopping for cars like the Corolla. Toyota sold more than 308,000 Corollas in the United States last year, but that was 14 percent fewer than the year before.

Mark Wakefield, global co-head of automotive and industrial at AlixPartners, another consulting firm, sees a modest decline in vehicle sales this year and a steeper drop in 2019 and 2020. The main factors, he said, will be higher interest rates and an increasing supply of affordable used cars that were leased in the last few years. Other forecasters said the aging of baby boomers, and the emergence of a younger generation less keen on owning cars, would also dampen demand.

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A Toyota employee at the company’s engine plant in Huntsville, Ala. Toyota and Mazda are making a major investment in a new factory in the area. Credit Carlos Barria/Reuters

“There’s risk there,” Mr. Wakefield said. “Too much production can cause an imbalance in the market.”

The Toyota-Mazda plant will be about 14 miles from an existing Toyota engine plant. The new site encompasses 2,500 acres, enough to have suppliers of major components like seats or dashboards set up adjacent plants.

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Mr. Carter said no decision had been made on such an arrangement.

The plant will be Toyota’s fifth vehicle factory in the United States, joining assembly factories in Indiana, Kentucky, Mississippi and Texas, along with six component plants.

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The Corolla is also made in Cambridge, Ontario. That plant will eventually stop making the Corolla and focus on the other model it assembles, the RAV4, a small sport-utility vehicle that is now Toyota’s best-selling vehicle. The company sold more than 407,000 RAV4s in the United States last year for the first time, passing the Camry, long Toyota’s sales champion in the American market.

Mazda has not yet disclosed what car it will make at the Huntsville plant.

Alabama is already the home of major auto plants owned by Daimler’s Mercedes-Benz division, Honda Motor and Hyundai Motor.

Auto plants are considered highly desirable employers because they tend to have a significant impact on local employment. In addition to hiring by suppliers that provide parts for cars, auto plants stimulate home building, spending in restaurants and stores, and the creation of companies to provide services ranging from office cleaning to technology support.

“If you have a plant with a work force of 3,000, you need a lot of other businesses that support the plant, not just parts suppliers,” Mr. Harbour said. “Car plants have a significant impact on the regional economy. That’s why states want to get them.”

When Volkswagen decided to add 2,000 jobs at its plant in Chattanooga, Tenn., in 2015, a University of Tennessee study found the expansion created 9,800 other jobs in the region.

The new Alabama plant is part of an initiative by Toyota to invest $10 billion in the United States over the next five years. In announcing the cooperation between Toyota and Mazda in August, Toyota said it was also taking a 5 percent stake in its new partner.

The companies’ plan was hailed by President Trump, who has called on auto manufacturers to produce more vehicles in the United States in hopes of creating jobs. In often-caustic Twitter messages, the president also criticized Ford Motor, General Motors and other automakers for building or expanding factories in Mexico, and threatened to tax any vehicles imported from south of the border.

Facing pressure from Mr. Trump, Ford canceled a planned Mexican car factory and diverted some of the planned investment to Michigan. He also took aim at Toyota for deciding to build a new truck plant in Mexico.

Toyota is moving forward with its Mexico plant, but it has reduced its investment there and halved the number of vehicles it will eventually produce to 100,000 a year.

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Article source: https://www.nytimes.com/2018/01/10/business/toyota-mazda-plant-alabama.html?partner=rss&emc=rss

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