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Toyota to U.S. workers: Made-in-Japan Camrys are more profitable

by and

Bloomberg

Toyota Motor Corp. issued an unsettling warning to Kentucky workers building its top-selling Camry sedan: Cut costs now or face an uncertain future.

The automaker can build a Camry in Japan, ship it all the way to Kentucky and make more money selling that car than from one built at Toyota’s factory in the state, the plant’s president told employees in a 2½-minute internal video.

“I’m not sharing this to scare you, but to heighten your awareness of the current risk we now have,” Wil James, who has managed the plant for more than seven years, said in the video dated this month.

He said Toyota isn’t planning to close the factory and continues to invest in it for the next 30 years. “But all of this is on the assumption that we can make as much progress in cost reduction and efficiency as we’ve made in quality and safety.”

The video provides a glimpse into the cost-cutting drive spearheaded by President Akio Toyoda that’s freeing up resources for a record research-and-development budget. While Toyota is spending heavily on electrification and artificial intelligence — technologies that have the potential to transform the auto industry — the company is squeezing its vaunted production system for more savings.

The message James delivered also shows Toyota’s willingness to include its U.S. operations in cost-cutting efforts during politically sensitive times. President Donald Trump has pressured Toyota and its Japanese peers to locally produce more of the vehicles they sell in America.

After Trump attacked Toyota on Twitter in January over its plans to build a factory in Mexico, the company let him take credit for a $1.33 billion investment the company announced in the Kentucky plant in April. Earlier this month, Trump praised Toyota and Mazda Motor Corp.’s $1.6 billion joint car factory planned for a still-undecided U.S. site. Those projects add to the $45.6 billion in cumulative investment that Japan Automobile Manufacturers Association members have made in the U.S. through 2016.

Earlier this year, Toyoda set up a cost-saving task force comprising four executive vice presidents and charged them with ensuring that any new outlays are funded from cuts to other programs. James said in the video that workers at the plant in Georgetown, Kentucky, would be hearing more about cost-cutting efforts over the next few weeks.

Spanning a size equal to 169 football fields, Georgetown is the auto industry’s second-largest assembly plant in North America by volume and Toyota’s biggest in the world. The investment announced in the factory earlier this year was to implement Toyota New Global Architecture, a more flexible production system that’s being applied to almost every new model, from Prius hybrids to Toyota Highlander sport utility vehicles.

Toyota’s Tsutsumi plant in Aichi Prefecture, which also makes the Camry, was the company’s first factory to implement Toyota New Global Architecture, which helps explain why it’s cheaper to manufacture the car there than in Georgetown, spokesman Rick Hesterberg said.

“If you can make more profit from a Tsutsumi Camry than a Kentucky-built one, which plant would you pick to build it?” James said in the video message. He told workers they’ll learn more about the cost gap and asked for “a lot more ideas to reach parity.”

Supporters of the United Auto Workers called Toyota’s video an attempt to quell pro-union sentiment at the Kentucky plant, which employs more than 8,000 permanent employees and about 1,500 temporary workers. Joe Smiddy, 43, who works in Georgetown’s welding shop, said the video may have had the opposite effect — encouraging unionization, rather than dissuading it.

“It actually made people mad,” he said. “We’ve had a spike in the number of people coming to sign union cards.”

The UAW has largely failed to organize Japanese, German or South Korean automakers’ U.S. plants. Workers at a Nissan Motor Co. factory in Tennessee voted against joining the union in August following a yearslong organizing campaign.

“With this message Toyota is trying to make the choice not between joining a union or not, but between voting for a union or having a job,” said Harley Shaiken, a labor professor at the University of California, Berkeley.

Smiddy is a member of a committee of workers within the Georgetown plant who are pressing the UAW to arrange a vote for the union to represent them. He declined to say how soon one may be arranged. Brian Rothenberg, a Detroit-based spokesman for the UAW, said he had no immediate comment.

Hesterberg, the Toyota spokesman, described the video message as routine and said it had no connection with the UAW campaign. “We’re here for the long term,” Hesterberg said in an email. “In keeping with a long-term mindset, cost competitiveness is always top of mind.”