Toyota: No Regrets on Mexico Sourcing Plans
Prices of the Camry sedan, the vehicle with the highest U.S. content, would jump about $1,000 if a border tax comes into play, Toyota North America CEO Jim Lentz says. “That’s a pretty big hit to the consumer.”
NEW ORLEANS – Toyota officials say they aren’t having second thoughts about plans to build a new assembly plant in Mexico for Corolla small-car production, despite U.S. government threats of a 20% border tax on Mexican imports.
Toyota North America CEO Jim Lentz says a shift in sourcing strategy is impossible near-term because of the complexity involved in rejiggering the supply chain and the wrench it would throw into the automaker’s strategy to maximize efficiency at its regional assembly plants.
“The plan to move Corolla to Mexico is just one piece of a much larger puzzle of (reorganizing) our North American footprint,” Lentz tells a small group of reporters here on the sidelines of the annual National Automobile Dealers Assn. convention. “To take out one piece (of the plan) that is the Corolla and…do something different kind of destroys this strategic plan to move the rest.”
The production strategy is aimed at improving logistics and gaining efficiency. It calls for smaller vehicles to be built in the southern U.S. at Toyota’s Mississippi plant and in Mexico, where Toyota is building a new facility in Guanajuato to take over production of Corolla small cars from Canada beginning in 2019.
Output of larger passenger vehicles such as the Camry, Highlander, Sienna and some Lexus models will be concentrated at Toyota’s Midwest operations in Kentucky and Indiana, as well as in Canada. Truck output will come from the automaker’s plant in Texas and in Mexico, Lentz says.
Last week, Toyota confirmed a $600 million expansion of its Princeton, IN, plant to increase Highlander CUV production. It earlier began moves to boost Tacoma pickup production in Mexico, with 60,000 units in added capacity expected to come online later this year.
The Trump Admin. wants to renegotiate NAFTA in order to get more favorable terms for the U.S., a move that could result in higher tariffs on vehicles imported from Mexico. It also has signaled possible willingness to back a proposal led by Republicans in Congress for a 20% border tax on Mexican imports.
“It would put us in a tough spot (with Corolla),” Lentz says.
A 20% border adjustment tax would raise the cost of a U.S.-built Camry – the vehicle with the highest U.S. content at 75% – by about $1,000 per unit, he says by way of example.
“If that’s the base level of what everything else goes up, that’s a pretty big hit to the consumer,” Lentz says. “Manufacturers don’t have the margins to absorb that.
“Obviously, we’re not in favor of the border tax,” he says. “We don’t think it’s good for this industry. We have an industry that is projected to be 17.2 million. (If prices rise), it is going to be substantially less than that.”
That in turn will curb production for both automakers and suppliers, putting jobs at risk, Lentz adds. “It’s problematic.”
Countering the tax with a strategic realignment of production would be difficult near term.
(It’s a) global industry, global supply chain,” he says. “The time it takes to shift that supply chain is really the lifecycle of a vehicle. It’s difficult for the industry to move that rapidly to turn that supply chain around.”
In general, Toyota agrees with the direction the Trump Admin. wants to take with corporate tax restructuring, Lentz says. “It’s just that piece called border tax that over 10 years (would cost manufacturers) $1.2 trillion. It’s just tough for this industry.”
Meanwhile, Lentz says he supports the Detroit 3’s call for a single, national fuel-economy plan that would eliminate separate rules around zero-emission vehicles set by California and followed in 11 other states and the District of Columbia.
Ford CEO Mark Fields said here earlier this week that he, General Motors CEO Mary Barra and Fiat Chrysler Automobiles CEO Sergio Marchionne floated the idea of a 50-state standard in a recent meeting with Trump.
“We would prefer to see a 50-state plan,” Lentz says, possibly even including a nationwide ZEV target. “The industry still embraces (fuel-economy) standards. The question is, was the current review (rushed through late last year) conducted in such a way that they are realistic? I’m not sure we had a legitimate midterm review.”
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