Toyota to Shutter NUMMI

Toyota Motors (TM - Analyst Report) has revealed that it will close down the New United Motor Manufacturing, Inc. (NUMMI) plant in Fremont, California, which had been operated with General Motors since 1984. The move is a part of the company’s plan to reduce worldwide capacity by 700,000 to 1 million vehicles.

NUMMI, opened by General Motors in 1962, was shut down in 1982 on the back of operational inefficiency. However, the plant was reopened two years later when it became a 50/50 joint venture between General Motors and Toyota.

NUMMI was a remarkable joint venture in America’s as well as Toyota’s history. The joint venture taught Americans about the famous Japanese "lean manufacturing system" (focused on just-in-time delivery) through NUMMI, and Toyota took its first step in the U.S. using GM’s supply lines. NUMMI has produced Corolla and Tacoma for Toyota and Pontiac Vibe for GM. However, GM had decided to pull out of NUMMI after completing its bankruptcy filing in June, as it will discontinue the Pontiac brand.

Toyota will stop production at NUMMI in March 2010 and will shift production to its other plants in the U.S., Canada and Japan. Production of the Corolla subcompact will be moved to Cambridge, Ontario, as well as Japan, and Tacoma pickups will be produced in San Antonio, TX.

Toyota has been buffeted financially by the economic crisis. The company posted its first annual loss (¥437 billion or $4.4 billion) since 1950 for the fiscal year ended March 2009. Further, management has recently projected its net loss to worsen to ¥550 billion ($5.5 billion) for the fiscal year ending March 2010.

According to the East Bay Economic Development Alliance, the NUMMI closure would cost 5,400 direct jobs and 30,000 indirect jobs. Toyota has 12 manufacturing facilities in the U.S. Presently, six of them are operating under capacity and one has been idled in Mississippi.
 
We continue to recommend the shares of Toyota as Neutral.

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