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November 11, 2015

More RAVs replacing Toyota Corolla in Canadian plants

Toyota has announced it will produce the RAV4 sport utility vehicle, including its hybrid version, at its plant in Cambridge, Ontario, beginning in 2019.

Toyota has announced it will produce the RAV4 sport utility vehicle, including its hybrid version, at its plant in Cambridge, Ontario, beginning in 2019.

According to cbc.com, the plant learned earlier this year it had lost production of the 2020 Corolla to a plant in Mexico. Toyota said it would spend C$1bn on an assembly plant in Guanajuato, Mexico, and move production of the popular Corolla sedan there from Cambridge.

The Mexican factory would have the capacity to crank out 200,000 cars a year, bringing an end to the production of the Corolla in Canada. It is one of the bestselling cars in the country and had been built there since the plant opened in the 1980s.

Toyota had made more than 3m Corollas in Ontario since opening its first plant but, after production ends there, all Corollas sold in North America would be built either in the Mexican plant or an existing one in Mississippi.

Now Toyota has announced its Cambridge and Woodstock, Ontario, plants would be a North American hub for sport utility vehicles with the Lexus RX made in Cambridge and the RAV4 in Woodstock and Cambridge.

The Cambridge North plant was rated the best quality auto plant in North America by JD Power earlier this year, based on its low number of defects per vehicle, cbc.com noted.

Toyota said it would make "significant new investment" but did not give a dollar figure. It also did not reveal how many people would remain employed at the plant.

Toyota currently employs 8,000 people at the three plants in the Cambridge area and has given assurances that employment will be maintained, company spokeswoman Suzanne Baal told cbc.com.

Toyota said production of the Corolla would end in 2019, with RAV4 production to begin the same year.

The RAV4 is the most popular cross-over SUV sold in Canada. More than 220,000 of the vehicles are currently made each year at Woodstock, the newest of three plants Toyota has in Ontario.

But that production doesn't meet North American demand, Baal said. Sales of the RAV4 in the US alone exceeded 260,000 last year. "This is a hugely growing segment of the market," Baal said.

The company is rolling out a new production process across its global operations and will begin that process in Canada with the Cambridge North plant. The new process involves designing vehicles with standard parts, working toward high fuel efficiency and improving quality across the production process.

Baal said there would be increased demand for parts from suppliers who currently contribute to production of the RAV4.

Toyota's announcement that it would move production of the Corolla to Mexico added to concern about the competitiveness of the Canadian auto industry. 

It has long been feared auto assemblers would pull out of Canada to shift production to lower-wage jurisdictions such as Mexico, leading to the loss of thousands of jobs.

Canadian share of North American light vehicle production fell to 12.6%% in 2015, according to DesRosiers Automotive Consultants, down from 17% in 2007. At the same time, Mexico has taken a greater share of production, now at 19.5%.

Scotiabank economist Carlos Gomes told cbc.com the RAV4 is a higher value-added product than the Corolla and the addition of a hybrid version improves the capacity of the Cambridge operation.

He also welcomed the news that Toyota would retool the plant, as new investment in the Canadian auto sector has been waning.

"The reality is when you're looking at demand for vehicles, especially in the US, sales are back where they were in the early 2000s," Gomes told CBC News. And many of the vehicles currently on the roads are due for replacement, meaning strong demand will continue.

Gomes said the North American auto sector is "ahead of the curve" in adapting to the higher-value, higher quality manufacturing that consumers demand.

He was optimistic the Canadian industry would remain competitive, even after adoption of the Trans-Pacific Partnership.

"Under NAFTA, the parts requirement was 60% but it actually is at 76% right now, significantly above that threshold," he said.

The TPP reduces the requirement for North American-made parts, but Gomes says that may not matter as the North American industry has developed a tight supply chain that works.

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