Toyota Cutting Capacity

Japan’s biggest automaker, Toyota Motor Corporation (TM - Analyst Report), is reportedly slashing production capacity at one of its factories in Japan, with domestic sales falling to their lowest point in over 30 years. The company will suspend production at one of the two production lines at the Takaoka plant in Aichi prefecture, central Japan from 2010 until the second half of 2011, lowering the facility’s overall capacity by 49% or 220,000 vehicles.

Toyota also plans to shut New United Motor Manufacturing Inc. (NUMMI) in California, a joint-venture factory with General Motors. In June, GM had pulled out of the joint venture after filing for bankruptcy.

Toyota also plans to halt production lines at plants in Japan and U.K. These moves would cut the company’s production capacity by 700,000 vehicles to 1 million vehicles from its total annual capacity of 10 million vehicles. The company plans to produce 6.68 million vehicles globally in 2009, a 28% cut from 9.24 million a year ago.

Toyota has been re-examining its global strategy after reporting the worst-ever loss for the fiscal year ended March 2009 when peers Honda Motor Co. (HMC - Analyst Report) and Nissan Motor Co. (NSANY - Analyst Report) -- the second and third largest carmakers in Japan, turned profitable during the same period backed by cost reduction measures.

Toyota is now focusing on cost reduction and aims to reduce production-related costs by ¥360 billion and fixed costs by ¥490 billion this fiscal year to lower losses. However, it has lagged behind its rivals in cost-cutting.

The company saw a recovery in sales of fuel-efficient cars helped by government measures to promote such vehicles, with its Prius hybrid ranking as Japan's top-selling car in July for the second straight month.

For the fiscal ending March 2010, Toyota has forecasted a net loss of ¥450 billion ($4.8 billion) while Nissan is forecasting a second straight loss of ¥170 billion ($1.8 billion). However, Honda forecasts a profit of ¥55 billion ($58.7 million) helped by its motorcycle business.

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