Toyota Adding 700 Ontario Workers as Part of $414M Expansion

Week of September 30, 2002
Blockbuster Deal
from Site Selection's exclusive New Plant database

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New North American Plant in the Works?

Toyota's huge complex in Cambridge (pictured above in an aerial photo on a snowy day) already employed 3,200 workers before the automaker announced the addition of 700 jobs.

Photo courtesy Duff & Associates (www.duffandassociates.ca)

Toyota Adding
700 Ontario Workers as Part of $414M Expansion

By JACK LYNE, Site Selection Executive Editor of Interactive Publishing CAMBRIDGE, Ontario, Canada – Toyota (www.toyota.com), continuing its pedal-to-the-mettle expansion, is once again mightily stirring up the site-selection leaves - this time in the land of the Maple Leaf flag. The world's No. 3 automaker is adding 700 workers as part of a US$413-million expansion of its assembly plant in Cambridge, Ontario, Canada (www.city.cambridge.on.ca). And the Canadian expansion, some industry analysts say, underscores a larger, ongoing shift that's possibly reordering the North American auto-manufacturing landscape.
"We believe Toyota is one of the finest vehicle manufacturers in the world, dominating its Japanese home market and poised for continued long-term growth in the high-profit North American arena," Prudential Securities' auto-industry analyst Michael Bruynesteyn wrote in a recent report.
Toyota's solid North American position was further accentuated by two other recent major developments:
First, there was the automaker's newly announced $220-million, 350-employee assembly and truck-bed production facility in Tijuana, Baja California, Mexico. On top of that were Toyota's hotly rumored moves to possibly open another North American assembly plant. (For more on the rumored new plant, see the accompanying story in this issue, "Yet Another Toyota Assembly Plant? Mid-South Sites Reportedly Early Favorites.")

Toyota's Canadian Sales on Record-Setting Pace

Toyota officials at the Cambridge expansion announcement reiterated one obvious key element in the Japanese automaker's ascendant fortunes.
"Toyota believes strongly that it should build vehicles where it assembles them," Atsushi Niimi, Toyota Motor Canada chairman and Toyota Motor Manufacturing North America (TMMNA) president, said at the announcement at the southwestern Ontario plant, which already employs 3,200 workers. Toyota's sell-'em-where-you-make-'em strategy has paid off handsomely in Canada. So handsomely, in fact, that it fueled the need for the 700 added Cambridge jobs - which actually represent an expansion on top of an expansion.

"Canadian workers have proven over and over again that they can manufacture products of the highest standards," Toyota Motor Manufacturing North America President Atsushi Niimi said in announcing the additional employees at the Cambridge plant, where Toyota has invested almost $2 billion since the operation opened in 1988.

The Cambridge expansion's first stage unfolded in April of 2000, when Toyota announced a $413-million project to prepare the Ontario plant to begin producing the Lexus RX30 SUV. The move marked the first time that Toyota had chosen to build the Lexus outside of Japan.
But Toyota Canada's success in the 17 months since that announcement has spurred the need for further expansion. The company can't make Corollas and Matrixs fast enough to keep up with national demand, it's found. Bridging that supply-demand gap is the raison d'être for the bulked-up Cambridge work force, officials explained at the project announcement.
"The market has responded very positively," Toyota Motor Canada President Ray Tanguay said. "All of our Corollas are selling as soon as they hit the dealers' lots."
Toyota has an even bigger Canadian hit on its hands with the Matrix subcompact sedan, introduced in 2002 and only assembled at the Cambridge plant. Customers currently ordering a Matrix face a four-to-five month wait for delivery, Tanguay explained.
That gangbusters sales pace is part of Toyota Canada's record-setting 2002 growth clip. Toyota's Canadian subsidiary in September announced that it had reached 100,000 in sales in record time, running 20.4 percent ahead of 2001's pace.
"Toyota sold 100,000 cars in Canada by Aug. 27th, something that took us six weeks longer, until Oct. 9th, to accomplish last year," said Tony Wearing, Toyota Canada Group vice president of vehicle sales and marketing.

Product Mix Shifting with Expansion

Adding employees to meet that voracious vehicular demand, however, won't mean additional capital expenditures beyond the previously announced $413 million, Toyota officials said. What will change is the plant's production volume.

A city of some 100,000 residents in southwestern Ontario, the city of Cambridge has served as a picturesque backdrop for a number of motion pictures, including
"John Q" (starring Denzel Washington) and "'Til Death Do Us Part" (starring Michael Douglas, scheduled for release next year).

Currently, the Ontario operation makes 220,000 Corollas, Matrixs and Solaras a year. Initially, Toyota's strategy in adding the Lexus SUV to the product mix would've kept the plant's production volume at 220,000.
Demand changed all that. Now, with the 22 percent increase in employees, the plant's production volume will increase by 14 percent. Beginning in September 2003, the Cambridge operation will annually assemble 190,000 Corollas and Matrixs, and 60,000 Lexus RX30s.
"We have to manage increased customer demand for the Corolla and the Matrix beyond our initial expectations, as well as get ready for Lexus next year," Toyota Canada's Tanguay said of the new expansion scenario. "This is an exciting and positive time for our company."
The Lexus addition underscores another element in Toyota's winning production formula: designing plants to produce multiple models, which provides the flexibility to shift production in concert with shifting demand. That flexibility will allow Toyota to shift the Cambridge plant's current Solara production to one of the company's plants in Georgetown, Ky.
The Cambridge plant's high productivity prompted Toyota to pick the Ontario operation for the first Lexus production outside of Japan. The Cambridge facility won J.D. Power and Associates' 2001 Gold Plant Quality Award for North and South America, recording the study's fewest problems per vehicle.
"Canadian workers have proven over and over again that they can manufacture products of the highest standards," Niimi said in announcing the additional employees at the Ontario plant. Since opening its Cambridge operation in 1988, Toyota has invested $1.95 billion in the plant, David Turnbull, Ontario's associate minister of enterprise, opportunity and innovation, pointed out at the project announcement.

Harbour Report: 'Japanese
Still Beating Domestics' Productivity'

Toyota's Canadian expansion is a microcosm of the formidable challenge that foreign automakers are mounting to the once-almighty U.S. Big Three. As that Detroit-based trio struggles along a bumpy economic path, Japanese automakers in particular are kicking into expansion turbo-drive. In Canada, for example, Toyota has increased its vehicle production by 53 percent between 1997 and 2002. Honda has even more dramatically increased Canadian production over that period, upping its output by a whopping 125 percent. Together, the two Japanese automakers now account for some 21 percent of Canadian-made cars, twice their 1997 volume.
In contrast, from 1997 to 2002, all of the Big Three have cut Canadian vehicle production - Ford by 20 percent, DaimlerChrysler by 19 percent and General Motors by 7 percent.
Together, Toyota and Honda by 2003 will produce 640,000 vehicles a year in Canada. That's more than both DaimlerChrysler Canada and Ford Motor Co. of Canada.
And Toyota and Honda's accelerated North American production is coming at a time when Japanese firms continue to dominate the influential Harbour Report's plant productivity rankings. The 2001 Harbour Report, for example, found that Toyota made $1,182 in profits on each vehicle it made in North America. Honda made even higher per-vehicle profits, $1,661.
In contrast, GM made only $337 per North American-made vehicle, while Ford and DaimlerChrysler actually lost money on each vehicle, the Harbour Report found. "The story is the Japanese are still beating the domestics in productivity," said Ron Harbour, president of Harbour & Associates, which produces the Harbour Report. "We can make a big deal about GM beating Ford and Chrysler or all of them fighting with each other, but if they continue to trail the Japanese in productivity, that's a big problem."

$140M Mexican Investment at NAFTA's Other End

Toyota, in the same week it announced its Cambridge expansion, provided even more evidence of foreign automakers' high-torque North American expansion. This time, the Toyota City, Japan-based company was enlarging its continental presence at NAFTA's other end - in Tijuana, Baja California, Mexico.
As with the added workers in Canada, the Mexican announcement represents an expansion on top of an expansion. As reported earlier in these pages (see June 17 Project Watch), Toyota in June broke ground on a Tijuana plant that was scheduled to manufacture truck beds.
Booming North American demand, however, changed that scenario, too. In late September, Toyota announced that the Tijuana plant would also assemble 20,000 Tacoma pickup trucks a year. The assembly work is an addition to the plant's originally scheduled production of 170,000 Tacoma truck beds, which will be used at Fremont, Calif.-based New United Motor Manufacturing Inc. (NUMMI), a co-owned Toyota-GM joint venture plant.
All told, the Tijuana plant will involve an initial investment of $140 million and will employ 460 workers.
But Toyota, despite its aggressive North American expansion, is a latecomer to NAFTA's southernmost member. The company only began selling its vehicles in Mexico this year. And Toyota is one of the last major automakers to set up a Mexican plant.
Uncertainties over the Mexican economy fueled the company's earlier caution, Toyota officials said. "To have a plan like this, you need to have great trust in a country," said Toyota Motor Sales USA President and Chief Executive Yoshimi Inaba.
Late start notwithstanding, Toyota may later ramp up the pace of its Mexican expansion. "We like to take things one step at a time," explained TMMNA Vice President Jim Wiseman. "This is the beginning. If the market expands, more will come."

Editor's note: For more on Ontario, see Site Selection's section on the province in the November 2002 issue.

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