Despite Toyota Motor Corp.’s improved earnings forecast announced Tuesday for the current business year, the automaker still needs to overcome a major hurdle — the planned shutdown of a plant in California, the second largest in the U.S.
Analysts welcome the auto giant’s plan to close New United Motor Manufacturing Inc., its joint car manufacturing venture with General Motors Corp., as a rational move.
Liquidation of the venture is expected to trigger a sizable one-time cost for Toyota, but the analysts say a quick pullout will benefit Toyota in the long run.
The cost of closing NUMMI, in addition to whatever compensation its retiring employees and workers at group parts makers receive, would not outweigh the possible losses if it keeps the Fremont plant open, they say.
GM, which is currently undergoing restructuring, already announced in June it was withdrawing from the 25-year-old joint venture.
At the end of July, Toyota started talks for its own withdrawal with Motors Liquidation Corp., which is handling GM’s restructuring, hoping to reach a decision by the end of August on details, including how to liquidate the plant.
“It would be realistic to close the plant, considering a possible financial burden on Toyota,” said Osamu Kobayashi, an analyst at Standard & Poor’s in Japan. If Toyota continues to operate the plant, production facilities in North America would be excessive amid slumping U.S. auto sales and force the auto giant to generate losses, Kobayashi said.
Toyota’s global production is projected to decline to 6.3 million units for the business year to March, from a recent peak of 8.55 million for the year that ended March 2008.
If Toyota goes ahead and closes the plant, it may have to book tens of billions of yen due to impairment of fixed assets.
The maker may also have to pay the dollar equivalent of tens of millions of yen each to about 5,000 workers at NUMMI, said Mamoru Kato, senior analyst at Tokai Tokyo Research Center Co.
“Even though they have to pay such money, the amount would not be so different from any losses Toyota would log by continuing to operate the plant,” Kato said.
Moreover, Toyota Senior Managing Director Takahiko Ijichi said Tuesday that Toyota alone is not on the hook for NUMMI-related costs because it is still a 50-50 venture with GM even after the U.S. maker’s withdrawal.
Kato said that because the NUMMI plant is old, its productivity is also lower than that of newer facilities.
If Toyota shuts down the plant, its Corolla production would be transferred to a plant in Canada, while production of Tacoma pickup trucks would either be transferred to that same plant or be terminated, Kato said.
But the fate of NUMMI is still uncertain.
On July 23, California Gov. Arnold Schwarzenegger released a statement requesting Toyota to continue the operation.
“The Schwarzenegger administration is actively engaged with NUMMI’s partners, Toyota, federal officials, local officials, labor, suppliers and other stakeholders to work together to ensure the future success of the facility,” David Crane, the governor’s special adviser for jobs and economic growth, said in the statement.
“Our office will continue to respect Toyota’s wishes to keep discussions private as we work together to determine the best path for ensuring NUMMI’s continued operations in Fremont,” he said.