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By Alan Ohnsman
Dec. 23 (Bloomberg) -- The worst U.S. auto market since the early
1990s may force Toyota Motor Corp. to do something that was once
unthinkable: cut its North American payroll.
Asia's largest automaker, which hasn't shed workers in 24 years of
building cars in the U.S., is exhausting options to trim costs after
halting work on a Prius plant in Mississippi, idling a Texas truck
factory for 15 weeks and planning to pare U.S. and Canadian output
next month.
"If we don't see a rebound by the second half of next year, they'd
probably have to consider layoffs," said Haig Stoddard, an analyst at
forecaster IHS Global Insight Inc. in Troy, Michigan. "Toyota was
expanding to catch up with demand. Now it's got itself stuck with
overcapacity for the first time."
Adding to the pressure on North American operations amid a 13 percent
slump in U.S. sales will be Toyota's first operating loss in 71 years.
Toyota yesterday projected a deficit of 150 billion yen ($1.7 billion)
in the year ending March, erasing a forecast for a 600 billion yen
profit.
Job cuts can't be ruled out as sales continue to fall, said Jim
Wiseman, vice president of external affairs for Toyota's North
American production unit.
'Never Say Never'
"We wouldn't anticipate it getting to that point, but we never say
never," Wiseman said. Toyota has 30,000 North American employees
spread among 14 assembly, engine and parts plants, and vehicles built
in the region made up 56 percent of U.S. sales through November.
The Toyota City, Japan-based company hasn't cut full-time workers
since 1950 in Japan, when it last posted an annual loss, though
temporary jobs have been eliminated. Toyota adopted a lifetime
employment policy after years of labor turmoil, said Jim Womack,
chairman and founder of Lean Enterprise Institute in Brookline,
Massachusetts.
"At the end of the day, you can be as paternalistic as you like, but
if there's no cash in the till, it all comes to an end," said Womack,
co-author of "The Machine That Changed the World," a book about
Toyota.
Toyota's operating loss in North America for the six months ended in
September was 34.6 billion yen, excluding gains on interest-rate
swaps.
Regional production fell 13 percent to 1.45 million units through Dec.
20, according to trade publication Automotive News. Most of the drop
came from idling the San Antonio plant and an assembly line in
Princeton, Indiana, from Aug. 8 until Nov. 3 as inventory of Tundra
pickups swelled.
Training, Graffiti Removal
The 2,000 San Antonio workers stayed on the payroll to train, work on
efficiency improvements and even do community service such as graffiti
removal -- practices that may become less tenable as Toyota adapts to
the end of the growth that marked the years since U.S. assembly
operations began in 1984.
"In the past our flexibility was only upward," Ray Tanguay, Toyota's
executive vice president of North American production said Dec. 4 at
the opening of the company's plant in Woodstock, Ontario. "To manage
downward flexibility is obviously more challenging."
This year's U.S. sales decline will be Toyota's first since 1995.
While the 13 percent drop through November is smaller than the
industry's 16 percent average, Toyota trails its biggest Japan-based
competitors. Honda Motor Co. is down 5.4 percent in the U.S., the
least among major automakers, and Nissan Motor Co. is off 9.1 percent.
Depending on December sales, the U.S. market may fall to its lowest
annual total since 1992.
Longer Payback
Operating plants below capacity means companies will take longer to
recoup costs for construction, land and taxes, said Ron Harbour, a
partner at New York-based consultant Oliver Wyman, publisher of the
Harbour Report on auto-plant efficiency.
"You anticipate you'll spread those fixed costs over a certain number
of units," Harbour said. "If you're running a plant at half the pace
you originally planned, the cost per vehicle doubles."
Toyota's drive to match the big trucks of General Motors Corp. and
Ford Motor Co. spurred construction of a $1.3 billion San Antonio
plant to build Tundra pickups, a project overseen by President
Katsuaki Watanabe. He may step down next year and be succeeded by Akio
Toyoda, grandson of the company's founder, people familiar with the
matter said.
The Tundra factory opened in November 2006, before crude oil surged to
a record $147.27 a barrel in July and the recession damped demand.
Tundra sales are down 28 percent this year.
Workers in San Antonio earn an average of $25 an hour in wages and
benefits, Harbour estimates. That means Toyota may have had $30
million in labor expenses over the 15 weeks workers weren't making
trucks. Toyota's Wiseman declined to comment on these estimates.
Toyota's American depositary receipts fell 51 cents to $60.37 at 4:01
p.m. in New York Stock Exchange composite trading. The ADRs have lost
43 percent this year.
To contact the reporter on this story: Alan Ohnsman in Los Angeles at
aohnsman@bloomberg.net
Last Updated: December 23, 2008 16:11 EST
