Monday, June 29, 2009

GM Cuts Ties With Toyota in U.S. Joint-Venture

. Monday, June 29, 2009

By stockOzone team

General Motors Corp cut operational ties on Monday to a northern California auto plant it had operated in a joint-venture with Toyota Motor Corp for a quarter of a century.

The move deepens uncertainty over the future of the plant that employs over 5,000 workers and was once seen as a ground-breaking experiment in bringing production efficiencies pioneered in Japan to a U.S. workforce.

GM, which has been operating in a U.S. government-sponsored bankruptcy since the start of the month, said it was unable to reach an agreement with Toyota on a new production plan for the Fremont, California plant.

"After extensive analysis, GM and Toyota could not reach an agreement on a future product plan that made sense for all parties," GM said in a statement.

GM and Toyota have been 50-50 partners in the joint-venture plant commonly known by its acronym NUMMI for the New United Motor Manufacturing Inc, since 1984.

The Pontiac Vibe -- the only GM vehicle built at the plant -- will go out of production in August under a previously announced plan by GM. Toyota uses the plant to build the Corolla sedan and the Tacoma compact pickup truck.

Toyota, which surpassed GM as the world's top automaker in 2008, had said it wanted to keep the joint venture and expressed disappointment at GM's decision, and said it would consider whether to continue operating the plant on its own.

"While we respect this decision by GM, the economic and business environment surrounding Toyota is also extremely severe, and so this decision by GM makes the situation even more difficult for Toyota," Toyota said in a statement.

"We will consider alternatives by taking into account various factors, including the current distressed market conditions, our overall North American manufacturing capacity, and the viability of the facility as a stand-alone operation without GM production," the Japanese automaker said.

Japan's Kyodo News quoted a senior Toyota executive as saying, however, that Toyota would not shut the plant.

"We have relations with the regional community so there will be no closure," the unnamed executive said, according to Kyodo.

Analysts also said they expected NUMMI to stay given the political risk of a closure for Toyota. The United Auto Workers union represents hourly workers at the NUMMI plant, the only one of Toyota's 14 manufacturing facilities in North America with representation from the main U.S. auto union.

"This will result in further overcapacity for Toyota, but we're talking about very limited volumes for the Vibe anyway," said Okasan Securities auto analyst Yasuaki Iwamoto.

"This plant mainly builds small vehicles, so it's not one that needs to go away. Besides, it might not be a bad thing for Toyota to have one UAW-represented plant," he added

During the first six months of this year, Toyota built 48,872 Corollas and 10,838 Tacomas, while the Vibe accounted for less than a quarter of the plant's production, according to data from trade publication Automotive News.

That would mean the plant is working at about 40 percent of its total capacity of around 400,000 vehicles a year.

Toyota's shares held up despite the report, trading 2.5 percent higher at 3,660 yen in afternoon trade. The benchmark Nikkei average was up 1.8 percent.

A GM spokeswoman said the automaker was open to future partnerships with Toyota, but declined to comment on what those might include. The Vibe is based on the Toyota Matrix.

"I can tell you that the door is open to future opportunities with Toyota," said GM spokeswoman Elaine Redd.

A Toyota official in Tokyo denied a report that it was considering producing the Prius hybrid at NUMMI.

GM and Toyota set up the joint venture 25 years ago when both sides had a clear stake in its success.

The U.S. automaker was hoping to learn from Toyota's "lean" manufacturing techniques, which minimizes waste and inventory to keep costs down. Toyota, meanwhile, needed a local production base at a time when Japan's export boom was under scrutiny.

Then chairman Eiji Toyoda said Toyota hoped to make the plant "a model of economic cooperation between Japan and the United States."

GM contributed the Fremont plant, which had been closed in 1982, to the joint venture. Toyota provided $100 million to retool the facility.

Disclosure: Author does not own any of the stocks discussed here.

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