June 30 (Bloomberg) -- Toyota Motor Corp. has two choices after General Motors Corp. said it’s quitting the auto-assembly venture the rivals have shared for 25 years: bearing the expense of the factory alone or shutting down its first U.S. plant.

Bankrupt GM, the largest U.S. carmaker, said yesterday it will shed a 50 percent stake in the joint factory near the San Francisco Bay. GM’s decision makes Toyota’s situation “difficult” said Mike Goss, a U.S.-based spokesman.

Does Toyota “take full ownership of a plant that’s in the most expensive place in the U.S., and that’s also got a UAW workforce, or close it and eliminate thousands of jobs?,” said Ed Kim, director of industry analysis at AutoPacific Inc. in Tustin, California. “Both scenarios are bad.”

The plant, shared by GM and Toyota since 1984, was Toyota’s first U.S. auto-assembly factory and helped the company answer U.S. critics’ objections to imports. Closing the plant, where Toyota President Akio Toyoda spent two years, would compound economic woes in California, where a $24 billion deficit threatens to leave the state broke by July. The state is also Toyota’s biggest market in the U.S.

The Toyota City, Japan-based carmaker is coming off a record 436.9 billion yen ($4.6 billion) loss in the fiscal year that ended in March, its first in six decades, due in part to plunging sales in the U.S.

This year through May, U.S. sales of Toyota, Lexus and Scion brand autos fell 39 percent, and Toyoda said on June 25 the company faces “two more difficult years.” Japan’s largest carmaker expects a 550 billion yen loss in the current business year.

Financial Burden

“It will be an extra financial burden for Toyota to keep the factory,” said Yoshihiro Okumura, who helps oversee the equivalent of $365 million at Tokyo-based Chiba-gin Asset Management Co. “It will be a difficult decision for Toyota to make, but is one that the automaker needs to make soon.”

GM Chief Executive Officer Fritz Henderson on June 18 said the company would discontinue Pontiac Vibe hatchback production at the plant, its only model built there, by August, a year ahead of its initial plan.

New United Motor Manufacturing Inc., also known as Nummi, has capacity to make 420,000 cars and trucks a year and employs about 5,400 people, according to the plant’s Web site. In addition to Vibe, which is a version of Toyota’s Matrix hatchback, Nummi builds Corolla small cars and Tacoma pickups. It is Toyota’s only U.S. auto factory where workers are represented by the United Auto Workers labor union, or UAW.

GM was the factory’s sole owner from the early 1960s until 1982, when it closed the Fremont Assembly plant owing to escalating costs and labor conflicts with union workers. Toyota initially invested about $150 million to renovate the plant and GM contributed the property and original factory building to create the joint venture.

High Costs

“It’s always been a high-cost facility,” said Art Smalley, a production efficiency consultant with the Cambridge, Massachusetts-based Lean Enterprise Institute. “They have to lean toward closing it, unless they can figure out some kind of high-volume product to put in there that can really generate a profit,” said Smalley, who is also a former Toyota engineer.

Before GM said it would pull out of the plant, Toyota was considering offering a version of its Prius hybrid to GM that would be built at the factory and sold as a GM model, two people familiar with the plan said. Nummi has also been studied as a potential U.S. production site for Prius, the people said.

GM is shuttering factories, firing workers and shedding brands in an effort to emerge from bankruptcy and become a viable business. The Detroit-based company last week said it would add production of a new small car at a plant in Orion, Michigan, reducing its need for small cars supplied by Nummi.

Toyota rose 2.8 percent to 3,670 yen at the close of trading in Tokyo.

Toyota’s Hope

“Toyota’s hope was to continue the venture, and we haven’t yet decided any plans at the factory,” said Hideaki Homma, a Tokyo-based spokesman. “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.”

While GM owns half of the plant, Toyota models accounted for 76 percent of output through June 27, according to trade publication Automotive News. Toyota’s North American auto output is down 46 percent so far this year, according to the trade publication.

“Along with the tremendous PR challenge of closing down a factory amid a horrible economic period in California, this is Toyota’s first real manufacturing facility in North America,” Kim said. “Abandoning it would be an about face from the work they’ve done crafting an image as a responsible corporate citizen.”

To contact the reporters on this story: Alan Ohnsman in Tokyo at aohnsman@bloomberg.net; Kae Inoue in Tokyo at kinoue@bloomberg.net

Last Updated: June 30, 2009 02:41 EDT