Toyota pauses on Mexico expansion

Toyota Motor Corp is reconsidering a move to open a new compact car assembly plant in Mexico after company President Akio Toyoda told planners searching for a site to pause and review its rationale, executives familiar with the matter said.

According to four Toyota and group executives, momentum had been building for a decision this summer on the expansion, with the aim of starting production of the mass market Corolla in Mexico in a few years. But Toyoda then asked the team to “re-review” the project by year’s end, the people said.

“There’s absolutely no unused capacity lying around anywhere in North America? Installing production capacity to try to trigger growth is the old way that got us in trouble before,” one of the executives said, referring to questions Toyoda posed in asking for a comprehensive last-minute re-examination.

The upshot was that a decision on the expansion is unlikely before the start of 2015, two Toyota executives who spoke on condition of anonymity said.

One said Toyota would probably go ahead with the plant, but might scale it down or delay the start of construction.

Toyota already has a pick-up truck plant in the northwestern Mexican state of Baja California, capable of producing 63,000 Tacoma vehicles a year, but does not have any capacity for passenger cars.

A company spokesman said Toyota had not made any decision on a new plant in Mexico.

“We are always evaluating our production capacity in Mexico, and in North America generally, to keep it in line with local market demand, but no such decision has been made at this time,” the spokesman said.

The agonizing over further expansion encapsulates the strategic dilemma facing the 58-year-old company chief, who took charge of the firm founded near 80 years ago by his grandfather in 2009 after a 15-year hiatus without a member of the Toyoda clan at the helm.

Toyoda – the “d” was replaced by a “t” in the company name when a new logo was launched in 1936 – inherited a broken company that had just posted the first operating loss in 70 years.

He blamed the slump and a subsequent massive global recall crisis in 2009-10 on what he described at the time as his predecessors blind pursuit of volume and high margins and sought to refocus on product and quality, placing the company under a three-year global ban on adding new capacity through 2016.

Now, with global volumes and profits recover steadily, Toyota bosses are asking whether the time is right to step on the gas pedal again by installing new production facilities.

LOW-COST BASE

Toyota, including its Daihatsu and Hino units, became the first automaker to break through the 10 million vehicles mark in annual sales in the year ended in March.

The company began looking into the expansion in Mexico as its rivals rush to build manufacturing capacity there to lower the costs of vehicles they sell in the United States. Mexico could also serve as an export hub for South American markets.

Car makers including BMW (BMWG.DE), Kia (000270.KS), Audi (NSUG.DE), Honda (7267.T), Nissan (7201.T) and Mazda (7261.T) have all either begun production in Mexico or announced plans to start manufacturing there.

The people familiar with the plans said Toyota was looking for a site for a second assembly plant mostly in the central states of Queretaro and Guanajuato.

One of the executives said it was unlikely that Toyota would, in the end, pass up an opportunity to add capacity in Mexico.

“Given the high cost constraints in the United States and Canada, we have no choice but to use lower-cost locations in emerging countries to build cars,” he said. “I have been pushing for this since 2002. We need to build a presence in Mexico, sales-wise and manufacturing-wise.”

But “Akio’s desire to put a definitive end to the old ways” pursued by his predecessors remained strong, he added. That made it likely that Toyota would slow the pace of the shift into Mexico, he said.

(Reporting By Norihiko Shirouzu in Beijing and Maki Shiraki in Nagoya; Additional reporting by Yoko Kubota in Tokyo; Editing by Alex Richardson)