Toyota to Continue North American Part Sourcing

DETROIT – Sourcing more parts from China and other emerging markets may be the trend, but Toyota Motor Corp. chooses to buck it.

Those markets will remain small for the North American arm of the Japanese auto maker, which plans to continue to source an increasing amount of its components in North America, says Dennis Cuneo, senior vice president-external affairs and public policy for Toyota Motor North America Inc.

Cuneo says Toyota recognizes it can source elsewhere to reduce cost, but balances that fact against the risks and challenges of sourcing overseas.

“It’s one of the reasons we shifted from sourcing many parts from Japan to North America,” says Cuneo at a conference here, in conjunction with the Society of Automotive Engineers World Congress.

Strikes and events such as terrorist attacks in the U.S. can affect just-in-time parts delivery. Currency fluctuations can be devastating. Cuneo points to Brazil’s repeated changes to its currency as the kind of pitfall that can prove disastrous.

He notes even Toyota’s foray into Baja California, Mexico, where it will build Tacoma pickup truck beds later this year and add Tacoma vehicle assembly in 2005, is proving challenging in terms of infrastructure and logistics. (See related story: Toyota Confirms Tacoma to be Built in Mexico)

Suppliers account for 70% of the value added to a vehicle, and that figure is expected to increase. It is reason enough for Toyota to follow a conservative approach to ensure a strong and reliable supply chain.

Cuneo argues improvements to the North American supply base can further reduce cost. “We will source more and more in North America in the foreseeable future,” he says. “The last 20 years have been successful in Canada and the U.S.”

Speaking at a conference centered on a study by Roland Berger Strategy Consultants LLC, Cuneo apologizes that Toyota’s strategy seemingly runs contrary to the host’s findings. Most of the surveyed members of the Original Equipment Suppliers Assn. said it was a priority to move some of their manufacturing operations to lower-cost regions to counter cost demands from auto makers. (See related story: Survey: Supplier Migration to Emerging Markets)

Cuneo agrees globalization is one of the most significant issues affecting the auto industry, but argues the need to be competitive does not preclude thinking locally.

Roland Berger Partner Antonio Benecchi agrees that while mature markets such as North America are only growing at a 2% annual rate compared with 8% for emerging markets such as Eastern Europe, they should not be ruled out. The size of the U.S. market alone, and the fact it is expected to continue to grow, albeit slowly, means it should not be overlooked, Benecchi says.

Toyota has created a strong manufacturing footprint in North America from nothing. Cuneo remembers the pressure put on Japanese auto makers in the 1980s to build in North America. It resulted in the creation of the New United Motor Mfg. Inc., the joint venture between General Motors Corp. and Toyota that recently celebrated its 20th birthday.

Cuneo was part of the original NUMMI team and also remembers the three years it took to resolve the legal challenges and the assertions by critics that it threatened 300,000 jobs.

Before NUMMI, Toyota had no vehicle assembly, supply base or research and development in North America. Twenty years later it has invested $16 billion, capacity soon will be 1.66 million units, there are 35,000 employees (300,000 if you add dealers and suppliers) and Toyota buys $21 billion worth of parts annually in North America, he says.

Toyota has established, or is planning, manufacturing facilities in Kentucky, Missouri, Indiana, West Virginia, Alabama, Texas, North Carolina, Mexico and Canada, in addition to the NUMMI plant in California. Cuneo says 31 of its suppliers are expanding their plants or building new ones in the U.S., as are another two in Canada and two more in Mexico.

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