You are here
Toyota's red wall tested as Trump demands even more US plants
[CHICAGO] When Trump administration appointee Wilbur Ross sat for a hearing on his commerce secretary nomination, one name kept coming up: Toyota. A senator from Vice President Mike Pence's home state asked to be reassured trade reforms wouldn't compromise Indiana jobs. Another from Mississippi said he was "tickled to death" Corollas are built in his state.
Call this the Japanese automaker's Red Wall. Toyota Motor Corp started building it 30 years ago with its first assembly plant in Georgetown, Kentucky, in part to appease Washington during an era of icy US-Japan trade ties. One after another, more factories sprang up in politically conservative states, including Alabama, Texas and West Virginia.
The questions put to Ross underscore concerns the White House is likely to hear if President Donald Trump keeps up his attacks on Toyota and its peers. After criticising Toyota's plans to build a Corolla plant in Mexico, Mr Trump this week rebuked Japan for sending the US hundreds of thousands of cars from what he said were "the biggest ships I've ever seen". General Motors Co and its peers, meanwhile, struggle to sell their vehicles in Japan.
"For years, Toyota was extremely paranoid about being a foreign company, and about the possibility of tariffs," said Jeff Liker, a University of Michigan professor who's written nine books on the company.
"They just try to be Boy Scouts, perfect corporate citizens, to hedge against a possible backlash."
Producer Toyota built more than 1.38 million cars and trucks in the US last year, behind only GM, Ford Motor Co and Fiat Chrysler Automobiles NV. Still, Toyota's production fell about one million vehicles short of its sales in the country. Imported models include Japan-built Prius hybrids, Canada-assembled RAV4 and Lexus RX sport utility vehicles, and some Tacoma midsize pickups manufactured in Mexico.
The US$10 billion question for Toyota - it's vowed to invest this much in the US over the next five years - is whether all the roots it's put down in America will be enough to mollify Mr Trump. The carmaker's shares have dropped four per cent since Mr Trump called out its Mexico plans, following an eight per cent decline last year.
"I want new plants to be built here for cars sold here!" the president tweeted on Tuesday, ahead of a meeting with the chief executives of GM, Ford and Fiat Chrysler.
Toyota is scrambling to find something more to offer Mr Trump than the factory expansion and modernisation plan revealed Jan 9, according to two people familiar with the discussions. The search gained urgency after Mr Trump thanked Ford and Fiat Chrysler for their US investments and made no mention of Toyota's plans announced the same day, said the people, who asked not to be identified because the deliberations are private.
Shortly after president met Tuesday with the US auto CEOs, Toyota said it would add 400 jobs and spend US$600 million retooling and updating an Indiana plant.
"Everybody in Mississippi wants more Toyota," said Haley Barbour, the former state governor who in 2007 offered a US$293.9 million incentive package to lure investment from the company.
"I suspect you'll find the same thing in Indiana, Kentucky, Texas and every other state where they operate."
Toyota is in the process of completing a new North American headquarters in Plano, a suburb of Dallas, Texas. The campus will use as much glass as nearly 50,000 Tacoma truck windshields and house about 4,000 employees, including 1,000 new hires.
Hoosiers working at plants including Toyota's in the state of Indiana could use reassurance their jobs won't be put at risk by Trump-proposed tariffs that may interrupt global supply chains, Senator Todd Young told Ross during a confirmation hearing last week.
"The best way to deal with the trade deficit is increased exports. I think that's a No 1 priority," Mr Ross responded.
"No 2 is to get the Toyotas and other companies like that to build their factories here."
Mr Trump's anti-import rhetoric is reminiscent of the days then-Chrysler CEO Lee Iacocca urged former President Ronald Reagan to limit incoming shipments of Japanese cars. Models like the Corolla and Honda Civic gained recognition for reliable quality and superior fuel economy during the 1970s energy crisis.
Toyota and its Japanese peers voluntarily agreed to quotas and sought political cover as laid-off Ford workers in Detroit smashed imported cars with sledgehammers. Toyota followed its American competitors to southern states to dodge the United Auto Workers union, positioning the company in red states, where the Republican Party reigns supreme.
One option for Toyota to further reduce its flow of imports could be to add an assembly line at the plant Barbour championed in Blue Springs, Mississippi. That factory already makes Corollas and the company could increase output of the compact car there instead of the yet-to-be-opened Mexico facility Mr Trump has criticised.
The Blue Springs plant opened in 2011 and may need more time to show it can maintain quality and productivity as it grows, Jim Lentz, chief executive of Toyota Motor North America, said in an interview this month. The company is actively studying a Blue Springs expansion as well as other options, he said.
Toyota is "100 per cent in support" of Mr Trump's push to create more good-paying jobs in the US, Mr Lentz said. But he also said Mr Trump's proposed border tax would add US$1,000 to the cost of a Kentucky-built Camry.
Toyota has built goodwill over the years by avoiding layoffs even when idling plants, and by helping rebuild New Orleans after Hurricane Katrina. Still, Mr Liker said company officials haven't been this jittery about they're perceived in the US since 2010, when some felt unfairly singled out while the carmaker recalled millions of vehicles over unintended acceleration concerns.
"They became more comfortable after they started building factories here, but the wariness is still pretty high," Mr Liker said.