Toyota considers laying off American workers
BLOOMBERG NEWS SERVICE • December 23, 2008
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The worst U.S. auto market since the early 1990s may force Toyota Motor Corp. to do something that was once unthinkable: cut its North American payroll.
Asia’s largest automaker, which hasn’t shed workers in 24 years of building cars in the U.S., is exhausting options to trim costs after halting work on a Prius plant in Mississippi, idling a Texas truck factory for 15 weeks and planning to pare U.S. and Canadian output next month.
“If we don’t see a rebound by the second half of next year, they’d probably have to consider layoffs,” said Haig Stoddard, an analyst at forecaster IHS Global Insight Inc. in Troy, Mich. “Toyota was expanding to catch up with demand. Now it’s got itself stuck with overcapacity for the first time.”
Adding to the pressure on North American operations amid a 13 percent slump in U.S. sales will be Toyota’s first operating loss in 71 years. Toyota yesterday projected a deficit of 150 billion yen ($1.7 billion) in the year ending March, erasing a forecast for a 600 billion yen profit.
Job cuts can’t be ruled out as sales continue to fall, said Jim Wiseman, vice president of external affairs for Toyota’s North American production unit.
“We wouldn’t anticipate it getting to that point, but we never say never,” Wiseman said. Toyota has 30,000 North American employees spread among 14 assembly, engine and parts plants, and vehicles built in the region made up 56 percent of U.S. sales through November.
The Toyota City, Japan-based company hasn’t cut full-time workers since 1950 in Japan, when it last posted an annual loss, though temporary jobs have been eliminated. Toyota adopted a lifetime employment policy after years of labor turmoil, said Jim Womack, chairman and founder of Lean Enterprise Institute in Brookline, Mass.
“At the end of the day, you can be as paternalistic as you like, but if there’s no cash in the till, it all comes to an end,” said Womack, co-author of “The Machine That Changed the World,” a book about Toyota.
Toyota’s operating loss in North America for the six months ended in September was 34.6 billion yen, excluding gains on interest-rate swaps.
Regional production fell 13 percent to 1.45 million units through Dec. 20, according to trade publication Automotive News. Most of the drop came from idling the San Antonio plant and an assembly line in Princeton, Ind., from Aug. 8 until Nov. 3 as inventory of Tundra pickups swelled.
The 2,000 San Antonio workers stayed on the payroll to train, work on efficiency improvements and even do community service such as graffiti removal -- practices that may become less tenable as Toyota adapts to the end of the growth that marked the years since U.S. assembly operations began in 1984.
“In the past our flexibility was only upward,” Ray Tanguay, Toyota’s executive vice president of North American production said Dec. 4 at the opening of the company’s plant in Woodstock, Ontario. “To manage downward flexibility is obviously more challenging.”
This year’s U.S. sales decline will be Toyota’s first since 1995.
While the 13 percent drop through November is smaller than the industry’s 16 percent average, Toyota lags behind its biggest Japan-based competitors. Honda Motor Co. is down only 5.4 percent in the U.S., the least among major automakers, and Nissan Motor Co. is off 9.1 percent. Depending on December sales, the U.S. market may drop this year to its lowest annual total since 1992.
Operating plants below capacity means companies will take longer to recoup costs for construction, land and taxes, said Ron Harbour, a partner at New York-based consultant Oliver Wyman, publisher of the Harbour Report on auto-plant efficiency.
“You anticipate you’ll spread those fixed costs over a certain number of units,” Harbour said. “If you’re running a plant at half the pace you originally planned, the cost per vehicle doubles.”
Toyota’s drive to match the big trucks of General Motors Corp. and Ford Motor Co. spurred construction of the $1.3 billion San Antonio plant that opened in November 2006, before crude oil surged to a record $147.27 a barrel on July 11. Tundra sales are down 28 percent this year as the recession further damps demand.
Workers in San Antonio earn an average of $25 an hour in wages and benefits, Harbour estimates. That means Toyota may have had $30 million in labor expenses over the 15 weeks workers weren’t making trucks. Toyota’s Wiseman declined to comment on these estimates.
Toyota’s American depositary receipts gained 16 cents to $61.04 in early New York Stock Exchange composite trading. The ADRs have lost 42 percent this year. |
