From Site Selection magazine, January 2000
C O V E R     S T O R Y

U.S. Car Wars:
Toyota Turbo-Charges
Its I-64 Cluster

b y     J A C K     L Y N E

Value Added
A deep labor pool and high productivity in West Virginia are adding
yet more value to the "Toyota Road" cluster.


“When it comes to labor availability -- that persistent bugaboo that's stifling so many U.S. expansion plans -- West Virginia has delivered for Toyota like "Almost Heaven," that fictional locale John Denver memorialized in song. And, Toyota might add, you can drop the "almost."

"When Toyota announced that its first U.S. unit plant was coming to West Virginia, it set up an 800 number for inquiries," says David Copenhaver, the affable general manager of the Toyota Motor Manufacturing West Virginia (TMMWV) plant.

"In the first 10 days, 29,000 people called," Copenhaver explains. "Since then, we've gotten between 28,000 to 30,000 job applications, and we're still getting them."

And that's for a total of 800 jobs, 35 to 38 applicants for each, an eye-popping number typifying the slam-bang events that have peeled off in West Virginia.

First, Toyota in May 1996 announced it was locating a US$400 million, 350-employee four-cylinder engine plant near tiny Buffalo, W.Va. (pop. 1,000), an hour's drive northwest of Charleston.

By January of 1998, the world's No. 3 automaker had announced that TMMWV's manufacturing menu would also include V-6 engines. That $300 million investment added 200 jobs and was the first time Toyota had expanded operations even before production started.

Then, in September of 1998, came another blockbuster: TMMWV would also include a $200 million, 250-employee plant to manufacture automatic transmissions for the hot-selling Camry -- marking the first time ever that Toyota will build automatic transmissions outside Japan.

All told, Toyota in only 28 months made almost $1 billion in investment in TMMWV, pushing annual capacity to 500,000 engines -- nearly half of Toyota's North America-made engines.

"This decision speaks highly of the confidence Toyota has in the West Virginia work force," TMMWV President Tomoya Toriumi said in September of 1998.

And, Toriumi might've added, when you're trying to become the world's first truly global car company, work-force quality becomes something like the Holy Grail. Something almost like heaven.

From Feeble Tadpole to No. 1
That West Virginia expansion juggernaut marks only Toyota's latest bold U.S. foray. Indeed, today's Toyota is eons removed from the one that entered the U.S. market in 1958, importing the Toyopet, a tadpole-shaped auto with turtle-like sales moves: 1958's Toyopet sold 287 U.S. units.

In marked contrast, the West Virginia operations are part of Toyota Motor Manufacturing North America's (TMMNA) huge North American manufacturing portfolio, which has the pedal nailed to the medal. TMMNA's nine plants, in fact, are on pace to produce 1 million vehicles for the first time in a single year, and 1999 North American sales will likely equal sales in Japan.

"Our goal is to be North America's best, most respected auto manufacturer," says TMMNA President and CEO Teruyuki Minoura.

Everyone, of course, says that. Toyota, however, has ponied up the requisite mega-ante to play for all the marbles.

That strategy has unfolded on a particularly massive scale inside the U.S. market, where Toyota's capital investments have topped $9.2 billion. In 1998 alone, Toyota spent $6.6 billion with North American suppliers for parts and components that went into U.S.-built vehicles. And Toyota at yearend 1998 had 114,865 U.S. workers (23 percent direct employees, the rest at Toyota's 481 U.S. dealerships). Toyota in short, has become the fastest-growing automaker in the U.S. market. The Camry, for example, was America best-selling car in both 1997 (displacing Ford's Taurus) and 1998, and may score a 1999 three-peat.

Demand Drives TMMWV Growth
That strong market demand -- which has made Toyota the No. 4 U.S. automaker -- has spurred the whippet-quick events in West Virginia.

"Toyota needed more capacity for the Camry V-6, Toyota's most popular engine for U.S.-built models," Copenhaver says. The company looked at several locations, he says, including a Kentucky Toyota plant that already made the V-6.

Production Totals TMMWV, though, landed both the V-6 and automatic transmission expansions; and it may land more, judging from its picturesque Putnam County site, nestled in the rugged Appalachian Highlands in a scenic valley near the winding Kanawha River. It's the kind of striking ambiance that would also likely fit for an R&D location.

"Yeah, we still have a lot of land left," says Copenhaver, sitting in a TMMWV conference room. "This is a 230-acre (92-ha.) site; with the transmission facility, we'll be using roughly 90 acres (36 ha.)."

David Copenhaver "With a facility like this, there's a lot of up-front infrastructure cost," he continues. "If you can continue to get the right kind of people, it doesn't make a whole lot of sense to go out and start a whole new greenfield site.

"So if we continue to be successful here and in our overall business, yeah, there would be the need for future capacity, for something that might fit here. That, of course," Copenhaver cautions, "doesn't mean Toyota won't start a whole new greenfield operation."

The fact is, though, Toyota does go for massive economies of scale, particularly along I-64, which runs near TMMWV. Some, in fact, now call I-64 "Toyota Road."


Right: "We've gotten between 28,000 to 30,000 job applications, and we're still getting them," says TMMWV General Manager David Copenhaver.
Exhibit A: Georgetown, Ky., site of Toyota's first U.S. plant, a $1.3 billion operation announced in 1984. Today, Georgetown employment totals some 8,000 workers, and investment has topped $4.1 billion. Further down I-64 lies Toyota's $1.2 billion Princeton, Ind., plant (announced in 1995), with projected employment of 2,300.

Then there's Toyota's North American manufacturing headquarters in Erlanger, Ky., north of I-64. Opened in 1996, the $53 million, 700-employee headquarters is already expanding.

Cluster Boosts Efficiencies
Those I-64 locations form a critical cluster in Toyota's U.S. designs.

"Undoubtedly, Indiana, Kentucky and West Virginia will be Toyota's U.S. production base," says Toyota President Fujio Cho, who for six years ran Toyota's U.S. production. "Those plants are very close, so they can help each other or compete, inspire each other."

The cluster's closeness fosters strong interaction, Copenhaver says. "The Indiana, Kentucky and West Virginia plant managers formally get together monthly in Erlanger," he explains. "And with Toyota's very open communications system, the plants have ongoing self-initiated communications. We're always looking to see how things worked in other plants so we don't reinvent the wheel. Everyone has been very open in sharing."

Clustering also minimized TMMWV's need for nearby engine component suppliers.

"A lot of suppliers that moved to Kentucky to support the engine plant that started in 1992 just expanded to supply us when our facility came online," Copenhaver explains. "And we're not necessarily a big enough customer to merit major investments coming to supply us. We do have a lot of local West Virginia suppliers for a lot of other things, but not engine components."

TMMWV also demonstrates the increasing reliance on U.S.-made parts, which make up some 65 percent of TMMWV-made engines, Copenhaver estimates. Toyota's domestic sourcing curve will start anew, though, when the West Virginia automatic transmission plant comes online in the spring of 2001. "Since Japan's the only place Toyota's ever made automatic transmissions, all the parts will initially come from there," he says. "Then, like the other engines, some of the components will likely be sourced out."

The Small Town Strategy
The I-64 cluster also illustrates Toyota's preference for small town locations. It's a long, long way, figuratively and literally, from Detroit to places like Buffalo, W.Va., Georgetown, Ky. (pop. 12,000), and Princeton, Ind. (pop. 8,200), prompting considerable conjecture about Toyota's strategy. But there's nothing unique about Toyota's southward drift, a pattern increasingly dominating auto site selection. Currently, 37.4 percent of the 12 million U.S.-made cars and trucks are manufactured in the South, reports Lansing, Mich.-based CSM Forecasting; by 2005, Southern plants will make 42 percent, CSM projects.

Toyota's U.S. Presence Many of the South's location pluses are widely known -- generally lower wages and strong right-to-work sentiments, for example. Says Trevor Bain, director of the University of Alabama's Human Resources Institute, "When auto plants locate far from the UAW's traditional roots, that increases the odds of winning an organizing vote."

Copenhaver, however, sees something else driving Toyota's small town migration.

"Personally, I don't think Toyota's picked smaller towns just to be the employer of choice, but because those areas offer the large acreage needed for major manufacturing," he says. "Areas with a rural, agriculturally rooted culture also have very strong family ties, a closeness that produces a strong work ethic. It's the same reason, attracting the best people, that brought the textile industry to the South." Indeed, that's the same strategy reflected in Toyota's origins.

Eager to escape Tokyo's urban bustle, founding father Kiichiro Toyoda in 1930 sold part of his textile business to buy farmland near the small town of Koromo in central Japan (later renamed Toyota City). "Toyota's ideology is rooted in a rural feudal culture," says Michael Maccoby, a prominent Japan scholar and business consultant. "Workers were typically farm boys parents brought to the factory."

Clustering is also a central feature around the Toyota City headquarters, which epicenters a network of 12 manufacturing plants and supplier facilities located within a 20-mile (32-km.) radius. Seventy-five percent of adults living in that area work either for Toyota or a supplier.

Maximizing JIT
The physical proximity of the small town U.S. cluster also maximizes the efficiencies of the just-in-time (JIT) system that Toyota is credited with perfecting.

"With JIT, we keep enough inventory to last a shift and a half," Copenhaver says.

To support its heralded JIT modus operandi, Toyota has precision-tuned its logistics system. Unlike most U.S. automakers, Toyota rejected hiring an independent firm to transport parts. Instead, Toyota meticulously manages the flow to meet razor-thin lead times. Routes, for example, are carefully plotted to pick up parts from several suppliers in a single trip, and trucks returning to supplier plants are filled with recyclable packaging.

automatic transmission plant Ironically, the JIT system that's helping fuel Toyota's success in the huge U.S. market sprang from the Japanese market's limits in the 1930s. Toyota hit a major roadblock in adapting Henry Ford's mass production methods: The then-miniscule Japanese market's small production volumes meant manufacturers couldn't afford to maintain surplus inventories. JIT was the only way to cope.

JIT and logistics alone, though, can't explain Toyota's continued success. There's something more at play here, something almost metaphysical.

Haruo Shimada, a labor economics expert at Japan's Keio University, even calls Toyota's system "humanware" -- an adroit mix of management style, worker participation, incentives and technology that maximizes motivation, productivity and personal development.


Right: Sceduled to come online in spring of 2001, the newest TMMWV expansion will house Toyota's first automatic transmission plant located outside of Japan.
Japan guru Maccoby says Toyota's system stresses "benevolent hierarchy . . . based on Confucian thinking, the kindhearted but demanding teacher/leader creating strong bonds of mutual obligation." However defined, what's become known as simply "The Toyota Manufacturing System" is cooking in West Virginia.

"With Toyota's system, we've been able to get started very quickly," Copenhaver says. "We haven't even been in production a year, and we're already making 1,000 engines a day."

The Productivity Push
Copenhaver attributes TMMWV's fast start to crackerjack training, "plus people who think well, with an unbelievable work ethic and great enthusiasm." Of TMMWV's line workers, 98 percent are West Virginians. But Toyota also imported a core of expertise to implement its celebrated system.

"We have 16 Japanese on staff full-time," Copenhaver says. "Most of them are here for three years and then rotate back to Japan. We also have a lot of short-term support from Japan for very intense on-the-job training."

TMMWV's success, though, is hardly atypical. That's underscored by 1999's edition of the highly regarded Harbour Report on North American Automakers. GM, for example, would've saved a staggering $4.9 billion, says the '99 Harbour Report, if its 1994-98 labor productivity had matched Toyota's, which Harbour & Associates (www.harbourinc.com) President Ron Harbour calls "truly remarkable."

Copenhaver feels much of Toyota's productivity magic lies in a collaborative style light years beyond many firms' lip-service exercises.

"Consensus has been Toyota's style forever, and it's a big part of what we do here," he says. "We have a lot of meetings to reach consensus on what we want to do, whether it's a new program, a new benefit or whatever.

"Everyone is made to feel their ideas matter," he continues. "There's a Japanese word in the Toyota system: jidoka, which means all team members are expected to stop work when problems arise. In some plants, you'd get yelled at for stopping the line to prevent producing defective parts. Toyota expects it."

Do they ever. Several years ago, a defective part (the first in 60,000 pieces) at Toyota's Bodine Aluminum plant in Troy, Mo., prompted an eight-hour staff meeting.

Toyota's consensual style extends to office space. Each of TMMWV's 78 front-office personnel has a seven-by-seven-ft. (2.1-by-2.1-m.) cubicle. "It's the same in all of Toyota's plants in Japan, and it's just great for promoting communication," says Copenhaver.

Strong Community Support
Toyota has also gained a strong consensual partner in the surrounding community, says Copenhaver, who particularly praises the West Virginia Development Office (WVDO at www.wvdo.org). "They've been just great," he enthuses. "They've done everything they said they'd do and when they said they'd do it."

Lavish incentives, though, weren't a major location factor, says Steve Spence, WVDO international division director.

"We didn't offer anything special," Spence explains. State incentives included standard tax credits, and the state took applications, he says, when TMMWV was deluged with job seekers "as we frequently do for major operations. Our biggest incentives were in getting the site ready, and providing training incentives." Planned Putnam County infrastructure improvements were also expedited, he adds.

"West Virginia's long positive relationship with Toyota was a major plus," Spence asserts. That relationship began in 1990, when West Virginia made headlines by establishing the first U.S. state office not in Tokyo, but in Nagoya, an industrial city of some 2 million near Toyota's headquarters.

Toyota officials later visited West Virginia, which was a major contender for the truck plant that went to Indiana in 1995. Toyota officials, however, said they wanted to continue their relationship with the WVDO, Spence says. Within a year, Toyota's West Virginia expansion fireworks were under way.

"It's the biggest international investment in West Virginia's history," says Spence. "And it's been a wonderfully positive experience, because there's no better corporate citizen than Toyota" (which has already donated more than $1.2 million to community programs).

The experience, says Copenhaver, has been equally positive for Toyota, one of 17 Japanese firms locating in West Virginia since 1990.

"One of the big things Toyota liked, people's openness, supportiveness and warmth, hasn't changed," he says. "Having worked in West Virginia before, it made me feel pretty proud to see everyone perform with the same enthusiasm after we got here. And I've sure seen that not happen."

Parallel Universes Meet
Copenhaver is uniquely qualified to assess community responsiveness. The 52-year-old previously spent 25 years in economic development, where he often seemed to be running on a parallel track with Toyota.

As West Virginia Roundtable president, in fact, Copenhaver even showed TMMWV's site to prospects. "This property, which American Electric Power used to own and has all the right ingredients for a plant site, was in the state portfolio," he says.

That prospect didn't bite. Similarly, while in economic development in South Carolina, Copenhaver unsuccessfully tried to recruit the Toyota plant that landed in Georgetown. And a later economic development assignment took Copenhaver to Lexington, Ky., only 12 miles (19 km.) from Georgetown. Toyota and Copenhaver's parallel universes met in 1996.

"I was in economic development in North Carolina, and I was in New Orleans at the World Congress for the International Development Research Council (IDRC). I got a call from a headhunter for Toyota. I still have no idea how he got my name."

No matter. Like Toyota, the trip to West Virginia has been most rewarding for Copenhaver, an eighth-generation West Virginian born in Huntington. "I tell you," he says, smiling broadly, "I'm having the time of my life."     SS






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