Suppliers to Toyota’s US plants are likely to feel the pain of recent changes in production plans as the automakers shifts products around its US manufacturing facilities, according to research firm Global Insight.
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“Flexibility in managing that change and the potential promise of new contracts may help to mitigate that angst,” auto analyst Aaron Bragman wrote in a note to investors.
Earlier this week, Toyota US production executive Steve St. Angelo told the 2008 Management Briefing Seminars gathering in Traverse City, Michigan, that the automaker had decided to pull ahead its launch of the US-built Highlander crossover utility vehicle (CUV) by six months.
Toyota had last month said it would build the next generation Prius at the new ‘greenfield’ Mississippi plant it is constructing which was originally planned to start making the Highlander SUV (called the Kluger in some markets) in 2010.
Now the company has decided to move more quickly to get the SUV into US production in order not to have idle workers at its Princeton, Indiana facility for too long, Bragman said.
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By GlobalDataPrinceton already makes the Tundra truck, Sequoia large SUV and Sienna minivan and Toyota said last month it would build Highlanders there from autumn 2009. Production of the Tundra full-size pickup truck at Indiana would end and be “consolidated” in the San Antonio from spring 2009. That plant opened at the end of 2006 but has never met its original production goals, according to recent US reports.
TMC also suspended Tundra and Sequoia production in Indiana, Tundra output at San Antonio and associated V6 and V8 petrol engine output at its plant in Alabama for three months from 8 August until November due to the collapse of the full-size SUV and truck markets in the US.
“During this non-production period, employees are to mainly be assigned to participate in ‘continuous improvement’ activities and training,” Toyota said at the time.
However, Bragman said, Toyota has confirmed that, despite the sluggish market for SUV/CUVs like that Highlander, it will begin producing the vehicle at Princeton in the fourth quarter of 2009.
“We need to get those people working. That’s the bottom line,” St. Angelo, was quoted as saying in Traverse City. “And that’s why it made more sense to send the Highlander to Indiana, because the tools are ready, and we can get those people working versus keeping it in Mississippi.”
Bragman said workers from the temporarily idled Princeton and San Antonio plants are currently “supposedly in ‘training mode’ until [November], performing maintenance tasks and training activities, with many workers reportedly volunteering to go to work at Toyota’s plant in Georgetown (Kentucky) and the Subaru plant in Indiana at which Toyota has contracted to build Camry sedans. St. Angelo says that no further job cuts are anticipated due to the work stoppages.”
According to the analyst, interiors supplier Toyota Boshoku America was “the first supplier to openly discuss what the production shift means to suppliers who were just as stunned by the Toyota announcement as everyone else.
“Toyota’s decision to play ‘musical factories’ with its North American production plans means not only major tear-ups to the company’s US manufacturing plants, but also to the suppliers, warehouses, and logistics companies that are set to supply those plants.
“Boshoku, a subsidiary of the Toyota keiretsu suppliers in Japan, had spent 10 months planning the plant that would supply interiors for the Highlander in Mississippi; now, it must scramble to accommodate the fact that the production location for Highlander has changed to Indiana, some 400 miles (600km) away.
Bragman added that Boshoku America president Nate Furuta had told the 2008 Management Briefing Seminars that the company was currently looking at how it could accommodate the changes to Toyota’s production plans through its wholly owned and joint-venture plants throughout the country.
The supplier has said that flexibility is the key to success in today’s climate of sudden fuel price shocks and massive consumer taste swings. “No one can predict these changes with precision,” an executive was quoted as saying recently, adding: “The question is, who can adapt quickly.”
Bragman said Boshoku was “likely just the first of many suppliers who will face hand-wringing and consternation at the change in Toyota’s plans. Suppliers who set up networks and facilities to supply truck production in Princeton are now faced with trying to figure out how to supply San Antonio, over 1,000 miles away.
“With Toyota’s just-in-time manufacturing techniques, having subcomponent production close to the final assembly is often the solution to meeting tight schedules; with such production shifts soon to come to pass, suppliers are likely to be approaching Toyota with requests for compensation for investments in facilities that will likely not be fulfilled.”
But he suggested Toyota does have an option that may help to placate these suppliers: new business.
“The company may be shifting around its various vehicle assembly operations, but one thing it is not doing is shuttering facilities permanently (the three-month hiatus in Tundra/Sequoia production notwithstanding).
“By offering contracts on new Prius business to suppliers left in the lurch by the Highlander’s move to Princeton, or similar deals to Indiana-based facilities that can no longer support Tundra/Sequoia, the company could avoid requests for compensation and charges,” Bragman wrote.
