Sunday 28 December 2008
Foreign Automakers in the U.S. Cut Back
Sales are off and production is down, so workers at the Toyota Tundra truck factory here are taking classes: how to handle tools safely, how to get along better with colleagues of varying backgrounds. Some have even cleaned local parks and fed the hungry while collecting Toyota paychecks.
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Foreign Automakers in the U.S. Cut Back
By Clifford Krauss
23 December 2008
SAN ANTONIO, Texas: Sales are off and production is down, so workers at the Toyota Tundra truck factory here are taking classes: how to handle tools safely, how to get along better with colleagues of varying backgrounds. Some have even cleaned local parks and fed the hungry while collecting Toyota paychecks.
“We’d rather be building trucks,” said Mike Goss, a Toyota spokesman. “I’m trying to imagine how many trucks we would be selling, with gas prices where they are now, if people were spending money.”
But people are not spending money these days, and sales of the Tundra and other Toyota vehicles have hit a wall. The sales slowdown, and some of the accompanying business problems, that have engulfed the Detroit automobile makers are rapidly spreading to the world’s strongest auto companies. To cope, Toyota, Honda, Nissan and Hyundai are all slowing American production, and many foreign auto companies are putting off plant expansions.
For the most part, the so-called auto transplants — foreign-owned car companies with major operations in the United States — have deep pockets and ample credit, and they are not facing potential bankruptcy like General Motors and Chrysler.
But none of the foreign companies have proved any better than the Detroit Three at predicting how gasoline prices would gyrate or the extent to which demand for cars and trucks would collapse in a deepening recession.
“The transplants are facing many of the same constraints that the domestics are facing: excess capacity, especially for light trucks like SUV’s and pickup trucks,” said Rebecca Lindland, an auto analyst at IHS Global Insight, a forecasting company. “The difference is that this is the first time they have faced these kinds of issues. It’s sort of a whole new world for them.”
The big question is how long the transplants can, or will, keep factories like the one in San Antonio, Texas, operating at a snail’s pace without laying off full-time workers. So far the companies have fired only temporary workers, but the future is clouded by the potential depth of the recession.
“The worst-case scenario is the current sales rate stays in place or gets worse for many years,” said David Whiston, an auto analyst at Morningstar. “But that’s stuff that is too scary to think about.”
The tale of the Tundra and the San Antonio plant is part of a larger story of unprecedented juggling for Toyota, the biggest foreign car producer in the United States by far and a company long known for its skill in planning and execution. Until recently, the company had been struggling to keep up with demand in North America.
But only a year and a half after the plant opened in late 2006, gas prices soared to such heights that the pickup truck market crashed. As inventories of Tundras ballooned this summer, Toyota suspended production at the plant for three months. Now Tundras have begun rolling off the assembly line again, but with the economy reeling, even low gas prices have not revived sales.
The Tundra was originally meant to be made here and at a plant in Indiana. But as the truck market collapsed, Toyota decided to consolidate all its Tundra production in San Antonio and produce the Highlander SUV at the Indiana plant.
Toyota further changed course with a plant under construction outside Tupelo, Mississippi, that was supposed to build Highlanders, deciding to produce the Prius hybrid there instead. But last week, with sales of even the Prius falling in the face of the economic downturn, Toyota decided to delay completion of the Mississippi plant indefinitely.
“It tells you how drastic the change is in the economy and the auto industry,” said Kirk Kohler, the San Antonio plant’s general manager for administration and production control. “Even Toyota, which typically is very conservative and deliberative and makes decisions for the long term, even we did not see the change that was coming in the market.”
Toyota executives say that the planning for the Texas and Mississippi plants happened at a time when sales of vehicles in the United States were 16 million a year. That number is falling and may drop below 12 million in 2009, meaning most of the big carmakers have too much production capacity.
Originally the Tundra was conceived as Toyota’s answer for the profitable American heavy pickup truck market, long dominated by the Detroit companies. It was designed in the United States, after American Toyota executives worked for years to convince top Japanese executives that the heavy pickup truck market was a big sales opportunity, particularly in Texas, the South and the Southwest.
Putting the factory in central Texas removed it from established parts supply lines, and it meant Toyota would be hiring in an area where wages are relatively high, but a large presence in Texas also assured the company additional political clout in Washington, industry analysts noted. Signs around the plant declared that the Tundra was “Born in Texas, Built by Texans.”
Early on, the Tundra met expectations, winning Motor Trend magazine’s Truck of the Year award and falling just short of the company goal of 200,000 in sales in 2007. But sales of the Tundra were off 50,000 over the first 11 months of this year compared with last. Last month, Toyota sold 6,607 Tundras, compared with 14,988 in November 2007.
The Tundra’s poor sales performance is by no means exceptional. The Prius did only marginally better, with a sales drop last month of almost 50 percent. With total United States sales down 13.4 percent over the first 11 months, Toyota is cutting production days at plants across North America.
The San Antonio plant had run two eight-hour shifts from April 2007 to August 2008, when it went idle for three months. Now it is running a single shift producing one truck every two minutes, half the assembly line’s capacity.
This year Toyota employed 2,250 people at the plant, including 350 temporary workers who were released when truck sales dropped. Executives at the plant estimate that a third of the 2,200 workers who worked for the 21 supply companies that support plant operations have been let go in recent months.
None of Toyota’s full-time workers have been let go, and the company has assured them that their jobs are secure. During the three months when production was suspended, the workers came to the plant to attend seminars on quality control, cost control and improved ergonomics to reduce injuries and improve productivity.
More than 340 employees volunteered during work hours to clean, paint and landscape 17 San Antonio parks, while others prepared and distributed meals at a food bank for people who had fled the coast to escape Hurricane Ike in September. Now that the plant is back up, the two shifts have melded into one, and workers alternate between the assembly line and training sessions.
“Everybody was nervous, wondering what was going to happen” when the plant stopped producing, recalled Anna Vallejo, an assembly line worker. But she said she got a “sense of stability” when management said there would be no layoffs of permanent workers.
Vallejo and other employees she works with on the assembly line have spent much of their down time learning Toyota techniques to identify problems and fix them. To reduce the frequency of tripping while working on the assembly line, they redesigned a tool cart and installed vents to reduce moisture that was warping a work platform.
“In other companies, they would let you go and call you back,” Vallejo said. “But here when we weren’t producing, Toyota opted to keep us here and train us better.”
Toyota’s labor practices contrast with those of the Detroit Three. Typically, during temporary factory shutdowns like those Chrysler announced last week, workers are paid about 70 percent of their salaries, which comes from unemployment benefits and a contribution from the company. Until recently, when plants were closed permanently, workers received their full salaries and reported to a room until a new job was found, in an often-ridiculed system called the “job bank.”
Some auto analysts think it is only a matter of time before Toyota and other transplants change course, because it is too expensive to pay workers who are not building vehicles. Many of the transplants’ factories are not union shops, and workers receive less generous pay and benefits than their American counterparts – total compensation, counting benefits, runs about $45 an hour for the foreign companies, versus $55 an hour for the Detroit automakers. But even so, if sales remain depressed, paying workers to clean parks and take classes could fast become an expensive proposition.
“I see buyouts coming,” said Maryann Keller, an auto consultant. “In a year like this, training people who don’t need to be trained is Toyota’s job bank.”
But plant executives say the training has already improved the quality of the trucks produced since the production suspension, adding that inspectors are spotting 40 percent fewer defects.
With or without mass layoffs, analysts say that Toyota and the other auto transplants most likely have the resources to survive the recession, perhaps emerging as big winners once the economy turns.
Said Matthew Slaughter, an associate dean at the Tuck School of Business at Dartmouth: “When your competitor is struggling or goes out of business, that tends to be a good thing for you if you are one of the stronger companies like Toyota and Honda.”
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