Toyota to Start Building Prius Hybrid in U.S.
Friday, July 11, 2008
Toyota said yesterday that it will begin manufacturing its popular Prius hybrid sedan in the United States for the first time and temporarily halt production of its overstocked full-size pickups, tactics aimed at solving supply problems that have dragged down the company's sales this year as gas prices have soared.
The company said Prius production will begin by late 2010 at a plant under construction in Blue Springs, Miss. The move marks the first time the sedans will be manufactured outside Japan. In the meantime, the auto giant is suspending production of 2009 Tundra pickups and Sequoia sport-utility vehicles for three months starting in August, to let dealers sell their remaining 2008 models.
Toyota shocked many industry watchers last week when it announced a 21 percent June sales slump, part of a half-year decline of 6.8 percent. Imploding demand for SUVs and trucks knocked Tundra sales down 47 percent from June 2007. And a shortage of Priuses meant that despite the car's increasing popularity, sales fell by 2.6 percent for the month.
Yesterday's changes are meant to bring Toyota's production more in line with the current buying climate.
"We need to adjust to changing demand in this market, so this is a big move in that direction," said Toyota spokesman Mike Goss. He said the Mississippi plant could hypothetically produce up to 150,000 Priuses per year -- more than enough to meet current demand -- if it has the necessary parts. Production has been slowed partly by a lack of batteries, but Toyota says it is addressing the problem.
The United States is the Prius's largest market, and auto analysts said there were a number of advantages to producing the cars domestically. Few expect the falling dollar to rebound anytime soon, which will help keep production costs low, and keeping the cars in the United States should shorten the time customers spend on waiting lists, helping the company keep pace with local demand.
"Demand is the number one reason. Everything else is gravy," said Jesse Toprak, an auto analyst with Edmunds.com. "If they had another 50,000-plus Priuses this year to sell, they could have easily sold them."
At the Koons Tysons Toyota dealership, salesman Tache de la Roche was happy to hear the company's news. Like every other dealership, it has had a flood of Prius-seeking customers.
"Lately, instead of two or three customers per car, we've had 35 customers per car," he said. The dealership has a 10-to-13-week waiting list for the Prius, and customers are generally patient. Some customers have even bought other cars while they waited for the Prius, then passed them on to family members.
Toyota said it plans to consolidate all U.S. Tundra production at its new plant in San Antonio by next spring. Toyota planned to make the Highlander SUV at the Mississippi plant along with the Prius, but decided to devote that plant to the Prius and assemble the Highlander in Princeton, Ind. The changes will cut production capacity for the Tundra by one-third to 200,000 trucks a year.
Goss said that Toyota was not abandoning the truck market and expects that when the economy rebounds, hard-core truck buyers would return to the vehicles.
"We're bullish on Tundra long term," he said.
David Whiston, equity analyst with Morningstar, agreed in part. Automakers can't expect truck sales to return to their 1990s heights, but when housing and other sectors rebound, sales are likely to pick up a bit, he said.
"They were having a little bit of success with the Tundra before the carnage broke," he said. "Unfortunately, they came into the full-size truck market too late."
Toyota's shares closed up $1.12 at $92.60 yesterday.