It was a red, white, and blue rally at the high school in tiny Princeton, Ind., as Toyota Motor Corp. announced it would build a truck plant in nearby cornfields. Huge signs along U.S. Route 41, including a 20-foot inflatable Uncle Sam, bade welcome to the auto maker and the 1,300 jobs it will bring. The Princeton Marching Band trumpeted fight music, and a pumped-up crowd that included World War II veterans wearing American Legion hats shouted: "T-O-Y-O-T-A!" Governor Evan Bayh stood next to Toyota President Hiroshi Okuda and placed Toyota's logo on a giant map showing the company's North American locations. The crowd roared.
The All-American hoopla was an ironic welcome for a Japanese carmaker starting an ambitious new drive into the heart of Detroit's profit margins. With the $700 million plant, Toyota will begin a serious run at the full-size pickup truck market--the last unchallenged bastion of Detroit dominance. The Princeton factory, which will start up in 1998, will be able to produce 100,000 T100 pickup trucks a year, enabling the company to dodge a 25% import duty and the ravages of currency swings. "It will be much cheaper to build the trucks here," says Okuda.
Watch out, Detroit. The Indiana plant is only one of several moves Toyota is making to establish itself as a full-fledged "domestic" vehicle producer relying mostly on U.S. production, not imports. Over the next three years, Toyota plans to boost North American production from 800,000 now to 1.1 million. It will begin making a front-wheel-drive minivan in Kentucky in 1997. This year, the company spent $230 million to expand plants in Cambridge, Ont., and Georgetown, Ky. All told, Toyota will have invested $6.5 billion in North America, giving it the largest presence of any non-American auto maker. In terms of sales, it will be half as big as Chrysler Corp.
Toyota, which once trailed Honda Motor Co. and Nissan Motor Corp. in the U.S., also seems to be attempting to ease some of its stateside management woes. For years, different sales and manufacturing units reported directly back to Japan, with only scant coordination among them. Now, all manufacturing operations will report to Toyota Motor Corporate Services of North America, which will "sell" vehicles to California-based Toyota Motor Sales USA Inc.
SHRINKING STICKERS. Although both units will still report directly to Tokyo, the reorganization should help the company drive down costs and improve coordination. Taken together, Toyota's moves are impressive. "Over the last two to three years, a lot of people said Toyota lost its way, but I think they were just lying low, and now they're coming on strong," says Peter Boardman, auto analyst at UBS Securities Ltd. in Tokyo.
In some senses, Toyota is doing all this because it has to. A strong yen helped push Toyota's third-quarter U.S. sales of Japan-made vehicles down 30% from last year. The company was able to compensate for that somewhat by increasing sales of its locally assembled vehicles by 20%. Overall, Toyota's U.S. sales, including Lexus, are off 1.7% so far this year, to 983,976.
But because the U.S. market as a whole is off even more, the company is again gaining market share. After reaching a high of 8.2% in 1991, the company lost a whole point, to 7.2%. Now, it's back up to 7.5%, and prospects for further gains are good. That's because Toyota is hot in key market segments, thanks in part to its U.S. base. The year-old Avalon, which was designed in the U.S. and is manufactured in Kentucky, is doing well, with some 60,000 sold so far this year. The Camry, while down a bit, is still the third-best-selling car in America, after the Ford Taurus and Honda Accord. It, too, is made in Kentucky. "Toyota is poised for major growth within the next year," says Christopher W. Cedergren, senior vice-president at market researcher AutoPacific Group Inc. in Santa Ana, Calif.
One reason for this happy state of affairs is a series of redesigns. The new Camry, due out next fall, should be priced at least $1,000 lower than today's $16,758 base model. It will be followed by a new Corolla in 1997. Toyota already is cutting prices on some models. The sporty coupe Paseo, all new for 1996, carries a sticker price of $13,038, exactly $1,000 below its predecessor's. And the face-lifted '96 Celica got a $700 cut, to $16,758. All told, Toyota raised prices only 1.7% for 1996--a smaller jump than the hikes that have been announced by Ford Motor Co. and General Motors Corp.
Localizing production of the T100 is particularly important because Toyota hasn't been able to compete in that highly profitable niche. Hefty tariff and shipping costs for the T100 have kept margins thinner than usual even for a Japanese auto maker, despite a sticker price that ranges from $14,500 for a low-end 4x2 to more than $24,000 for the loaded 4x4 pickup. Prices have risen about 7% this year, but that increase hasn't been enough to make the trucks profitable. Moreover, the company has been forced to offer dealer incentives of $2,000 to $3,000.
With Toyota already producing Corolla, Camry, Avalon, and Tacoma models in the U.S., the T100 plus the new minivan will raise the company's made-in-America line to six vehicles. There are more to come. "We expect that our list of North American-manufactured products will continue to grow," Okuda says. Likely candidates for U.S. production include the Lexus and the 4Runner.
BETTER POLITICAL CLIMATE. Toyota's timing is intriguing. Shifting production of the T100s to America is less sensitive politically now than it would have been when the truck was launched in 1992, an election year. The company's fear of political backlash also has ebbed because the U.S.-Japanese auto talks are over and the Big Three are making a push into Japan.
So it's a decisive new stage in Toyota's bid to expand its presence in North America. Many of the company's affiliated parts suppliers are likely to come along for the T100 ride, just as they did when Toyota set up shop in Kentucky. Thanks to these suppliers, the T100's local content will be 50%. That means Toyota is now the leader in the Japanese industry's effort to establish itself so deeply in the American heartland that Detroit will never be able to dislodge it.