Toyota, Mazda will build $1.6 billion U.S. assembly plant

on Aug5

UPDATED: 8/4/17 11:15 am ET – adds Trump comment

Editor’s note: Some earlier versions of this story misidentified the Toyota vehicle slated for the new U.S. plant. It will build the Corolla. 

DALLAS — Toyota plans to build a $1.6 billion U.S. plant in a joint venture with smaller Japanese rival Mazda to assemble Toyota compact cars and Mazda crossovers.

The factory, at a not-yet selected site, will have annual capacity of 300,000 units and create some 4,000 jobs, Toyota said Friday.

The joint venture is part of a wider agreement that calls for Toyota and Mazda to acquire stakes in one another. The companies announced the agreement earlier Friday. 

Toyota will assemble the Corolla at the U.S. plant and Mazda said it will use the factory to produce crossovers that it “will newly introduce to the North American market.”

The plant, slated to begin production in 2021, placed the two automakers in the good graces of President Donald Trump, who has criticized Toyota for building a car factory in Mexico rather than adding another U.S. plant.

Trump praised the investment in an early morning tweet from his personal Twitter account. “Toyota & Mazda to build a new $1.6B plant here in the U.S.A. and create 4K new American jobs. A great investment in American manufacturing!”

Though the announcement comes as the U.S. light-vehicle market has peaked and the outlook for car sales remains weak, the plant is sure to set off a bidding war among states eager for the investment.

President Trump has threatened automakers with tariffs on new vehicles crossing the border from Mexico, although that would require an exit from the North American Free Trade Agreement, which is being renegotiated by the U.S., Mexico and Canada.

Mazda builds cars in Mexico for the U.S. market but has not maintained a U.S. production source since severing ties with Ford Motor Co. and a former joint venture plant in Flat Rock, Mich., in 2012.

Jim Lentz, CEO of Toyota Motor North America, said the joint venture gives the company additional capacity without having to build a new factory entirely on its own. The increased capacity does not come at the expense of other North American plants, he said.

“It’s kind of a win-win for both of us,” Lentz told Automotive News. “They [Mazda] get production in the U.S. and I get another 150,000 vehicles and I get them for a relative bargain in the marketplace,” he said in reference to the $800 million that Toyota will invest in the 50-50 joint venture.

Lentz said he was not in a position to discuss the timing of the project in relation to pressure from President Trump on manufacturers to create U.S. jobs. The negotiations between Toyota and Mazda, launched in May 2015 when the two companies agreed to explore ways to collaborate, were carried out in Japan, where both are based.

“If you look at what the administration wants to see — and wants to see out of the industry — I think we share the same goal,” Lentz said in an interview. “It’s in our best interest to build the cars where we sell them. It helps us grow the U.S. economy, which in turn allows us to sell more vehicles in the marketplace,” he said.

Toyota President Akio Toyoda and Mazda President Masamichi Kogai shake hands at a joint news conference in Tokyo. The joint venture to build the U.S. plant is part of a wider agreement that calls for Toyota and Mazda to acquire stakes in one another. Photo credit: REUTERS

“This is our 60th anniversary [in the U.S.] and we’ve gone from building zero in the U.S. to building near 70 percent [of sales] here now, so clearly we understand the desires of the administration to build more in the U.S.,” Lentz said.

The additional U.S. factory capacity will allow Toyota to re-jigger production at North American plants that will allow it, among other goals, to produce more pickup trucks, notably the Tacoma.

“The increased capacity is really going to be pickup trucks. So, I will be building pickup trucks in three locations,” Lentz said. “I’ll be building pickup Tacomas in Baja [California] Mexico, I will be building Tacomas at the new plant in Guanajuato that begins production in late ’19 or early 2020 and then I will be building pickup trucks as I am today, Tacomas and Tundras, in Texas.”

The company has been adding light truck capacity in response to customer demand.

“Right now if you ask our dealers what’s the No. 1 vehicle we need more of, what are customers coming in and we don’t have enough to supply their needs, it’s Tacoma,” Lentz said. “That’s true here, that’s true in Mexico, that’s true in Canada, that’s true in Hawaii.”

Toyota is not new to manufacturing joint ventures. It already operates one with Mazda in North America and builds the 86 coupe jointly with Subaru, which sells the sporty two-door as the BRZ. Such partnerships are becoming more common globally given the high cost of developing new technologies.

Mazda produces small cars for Toyota at a plant in Guanajuato, Mexico, in a deal that goes back to 2015. Those cars are the Yaris iA sedan, based on a Mazda vehicle, and Toyota’s own Yaris hatchback. They form the backbone of Toyota’s subcompact offerings in the U.S.

“It’s been a good relationship,” Lentz said, “and I think there’s been a lot of trust built between the two companies.”

The deepening of ties between Japan’s biggest automaker and one of its smallest will also extend to developing electric vehicles and other forward-looking projects, Lentz said. “We’re going to jointly develop technologies for electric vehicles, we’re going to jointly develop connected-car technologies, and we’re also going to collaborate together on safety technologies,” Lentz said.

However, Lentz said the joint U.S. plant is only for traditional gasoline-powered vehicles. “Don’t assume we’re going to start building EVs at this plant,” he said, pointing out that low gasoline prices have held the EV market to just one-half of one percent of all light-vehicles sales in the U.S.

The joint technology venture “will allow us to work with Mazda to develop EVs for the future when they’re needed,” Lentz said. “Given the low volumes the marketplace will bear today, it’s pretty expensive to develop your own EV. So the fact that we could share joint development I think allows us to spread costs between two different companies. So, again, to me that’s kind of a win-win.”

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