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Toyota to shut production plant for over an year
by Jamie Anderson - August 26, 2009 - comments
Toyota has seen a recovery in sales of fuel-efficient cars, with its Prius hybrid ranking as Japan's top-selling car in July for the second straight month. However, it has lagged behind its rivals in cost-cutting measures. The behemoth now aims to cut production costs by keeping one of its plants shut for over a year
Tokyo, August 26: Japan’s biggest automaker, Toyota Motor Corp., reeling under a severe slump in demand due to unrelenting global recession, intends to close one of its domestic assembly lines in Japan from the spring of next year.
The car maker currently builds compact models such as its Yaris model at the plant. The move represents the first time a domestic Toyota plant has been shut for over a year. While the plant remains shut, close to 1,700 workers will be transferred to other Toyota factories.
As per the plans revealed by the auto behemoth, the production of vehicles would be pared down by 220,000 vehicles as the factory in central Aichi prefecture would remain closed until the second half of 2011.
Rationale behind cuts
At present, Toyota has the capacity to churn out 10 million vehicles annually. However, there is a clear demand-supply mismatch at present, therefore the company intends to reduce its global output to 6.68 million vehicles in 2009. This output translates into a 28 percent drop in the number of vehicles produced by Toyota last year.
Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc. in Tokyo opined, “The economy probably won’t recover until at least 2011, and even then we’re not sure. Toyota may even continue to close the line after that.”
"The production cut is positive for its earnings, but there is room for further capacity cuts in the United States and elsewhere," said Yoshifumi Tabei, an auto analyst at Kazaka Securities.
Cost cutting measure
The severe economic conditions have already forced Detroit giants General Motors Corp. and Chrysler LLC into bankruptcy. Toyota may have been better placed, but in no way can its position be termed comfortable. The company has forecast a net loss of 450 billion yen ($4.8 billion) for the year ending in March.
In an endeavor to thwart loss for the third consecutive year, Toyota President Akio Toyoda is leaving no stone unturned. Toyota’s decision is the latest in a series of moves undertaken by the Japanese auto manufacturer to trim costs and keep its head above the water.
Sakurai said, “Toyota is desperate to cut costs. The company needs to stop building unpopular and unprofitable cars.”
Toyota aims to save 360 billion yen through reduction in production-related costs and another 490 billion yen of fixed costs this fiscal year.