July 6 (Bloomberg) -- Toyota Motor Corp., grappling with excess North American plant capacity as sales wither, plans to spend about $500 million to upgrade an Indiana SUV-assembly plant, its biggest single such investment this year.

Toyota has budgeted 48.4 billion yen for the Princeton, Indiana, project, out of its 830 billion yen global plan for factory upgrades, it said in a filing to the U.S. Securities and Exchange Commission on June 24. The amount was listed on page 43 of a 174-page document.

The 11 year-old factory will build Highlander sport-utility vehicles, sales of which plunged 41 percent in the U.S. in the first half. Compounding a record 436.9 billion yen loss last year and its forecast of a bigger drop this year, Toyota faces debt service costs on an idled Mississippi plant and possible charges from General Motors Corp.’s exit from a joint California plant.

“Given the current situation, the scale seems large,” said Mamoru Kato, a Japan-based analyst at Tokai Tokyo Research Center. He wasn’t previously aware of the amount.

Toyota fell 0.8 percent, or 30 yen, to 3,610 yen at the close of Tokyo trading. The shares have gained 24 percent this year.

Honda, Subaru

The budget for Princeton is at least double the $230 million Toyota spent to add a Camry sedan assembly line in 2007 at affiliate Fuji Heavy Industries Ltd.’s Subaru plant in Indiana. It’s also nearly as much as the $550 million that rival Honda Motor Co. spent to construct an entirely new U.S. plant that opened last year, also in Indiana.

The investment is for “retooling of the West Plant to build Highlander and Sequoia on the same line, as well as supplier tooling for Highlander,” said Mike Goss, a spokesman for Toyota’s North American manufacturing unit in Erlanger, Kentucky.

While the amount seems “excessive” relative to past investments, Toyota may be doing extensive renovation of the plant, said manufacturing analyst Laurie Harbour-Felax.

“The only thing that I can imagine is that they need to put some major modifications into the body and paint shop for the Highlander,” said Harbour-Felax, president of the Berkley, Michigan-based Harbour-Felax Group.

Japan’s largest carmaker said in July 2008 it would add Highlander sport-utility vehicle output at the plant that makes Sequoia SUVs and Sienna minivans, giving no details.

Japan Exports

Currently, all Highlanders sold in the U.S. are exported from Japan. Production at the factory starts late this year, Toyota said.

Funds will also be used to modify the plant’s second assembly line and improve overall flexibility, Goss said, without elaborating.

While the modifications are extensive, the factory’s overall capacity to make 300,000 vehicles a year won’t change, and the size of the plant isn’t being enlarged, he said.

Toyota initially planned to make Highlanders in Blue Springs, Mississippi, at a $1.3 billion plant. That changed last July when the automaker instead said it would make Prius hybrids in Mississippi and build the Highlander in Indiana.

That move coincided with plans to consolidate production of Tundra pickups San Antonio, Texas. In December, Toyota indefinitely delayed the Mississippi factory, citing deteriorating conditions in the U.S. market.

“This is really our only investment this year, since Mississippi is idled,” Toyota’s Goss said.

GM Joint Venture

GM, attempting to reorganize its operations to emerge from bankruptcy, said on June 29 it would abandon the joint venture factory, New United Motor Manufacturing Inc., shared with Toyota in Fremont, California, for 25 years.

That’s left Toyota with options of maintaining on its own the aging plant, known as Nummi, in the highest-cost North American region to build vehicles or shutting its first auto- assembly plant in the U.S. and eliminating about 5,000 jobs.

Depending on how Toyota deals with Nummi, there may be some impact on the renovation of Princeton, Kato said.

The Princeton plant opened in 1998 and has 4,500 employees, according to Toyota’s Web site. A year ago Toyota’s global budget for plant construction and upgrades was 1.3 trillion yen, or 36 percent more than for the current fiscal period.

To contact the reporters on this story: Tetsuya Komatsu in Tokyo at tekomatsu@bloomberg.net; Alan Ohnsman in Tokyo at aohnsman@bloomberg.net

Last Updated: July 6, 2009 02:24 EDT