Toyota (TM, Financial) has finally cracked open its voluntary expansion freeze with its latest announcement of investing in new facilities in Mexico and China. The Japanese automaker is getting aggressive with global expansion to take on its global rivals General Motors (GM, Financial), Ford (F, Financial) and Volkswagen (VLKAY, Financial) that are upping their ante in the auto market.
Toyota had imposed a voluntary expansion freeze after witnessing a series of massive recalls and quality concerns. The investment decision at this point in time became necessary as demand is growing in the key markets. Unless Toyota expands its facilities and ramps up production, it won’t be able to capitalize on the rising demand. Here’s a look at the Japanese automaker’s investment plans in the near future.
Investing in Mexico to capitalize on the U.S. demand
Toyota is building a billion dollar assembly plant in the central Mexican state of Guanajuato that will have an annual capacity of 200,000 vehicles. The company said that it would employ 2,000 workers for the assembly plant. This is the first new plant where Toyota’s investing after three years. It would also be the carmaker’s first plant that shall use Toyota New Global Architecture. Toyota’s proposal of building the new assembly plant in Mexico is its first investment ever since 1997. Toyota’s CEO of North America Jim Lentz said: "Mexico is an important market for us, The No. 1 selling vehicle in Mexico is the Corolla."
The automaker shall make Corollas in this facility to compete more effectively in the North American auto market. Production of the car would be shifted from Cambridge, Ontario, to the Mexico facility in 2019. Toyota’s sales volume in the U.S. is very close to Ford’s. In fact, the automaker beat Ford in terms of volume in February and missed by a whisker in March. Toyota wishes to catch up with its American rival in the U.S. and expand its market share.
Mexico has gradually become an important manufacturing hub for other automakers as well. The key attraction in Mexico is the low labor cost. Not just this, the country offers favorable trade agreements. Besides, Mexico’s proximity with the U.S. adds another advantage to open a plant.
Mexico’s Economy Minister Ildefonso Guajardo said that, under Mexican President Enrique Peno Nieto’s administration since December 2012, auto investments in the country have grown phenomenally, crossing over $20 billion. This is a positive development for the economy. Toyota expects that the total investment in this assembly plant would be around 40% less than comparable investments made in 2008.
Rebuilding in China
Toyota also plans to invest in China, which surpassed the U.S. as the largest auto market in 2009. The company’s car sales in the country declined 20.9% to 227,700 vehicles in the first quarter of 2015. The carmaker aims to deliver around 1.1 million vehicles in China this year. Toyota cannot afford to lose ground in this market as it provides tremendous upside potential. Quite obviously it becomes essential for any automaker to expand its facilities here in order to make the most of the growing demand.
As such Toyota is investing $440 million in the economy to add a facility and expand its existing assembly line in Guangzhou. The third line could start as early as 2017 and have an annual capacity of 100,000 vehicles. The company said that no new jobs would be needed for the third assembly as other lines are expected to get more efficient and would not require as much workforce as is currently deployed. The remaining workers could be used for the third line.
Toyota’s decision of investing in Mexico and China is a vital one. It would help the company serve the growing demand in the U.S. and China. Expanding facilities would help Toyota boost its sales and keep ahead of competition.
