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Toyota to Scrap Corolla and Build New SUV at Alabama Plant

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Toyota Motor Corporation (TM - Free Report) announced its plan to scrap the production of Corolla compact cars at a new factory under construction at Alabama. Instead, the company will manufacture a new sport utility vehicle (SUV) at the plant. The facility is being constructed in association with Mazda Motor Corporation in Huntsville.

The largest Japanese automaker has taken this decision in response to the striking shift of vehicle buyers in the United States from cars to SUVs, pickup trucks and crossovers. Additionally, Per the company’s report for the first half of 2019, Corolla sales declined 5% to just 152,868, while overall Toyota car sales fell 8%. During the same period, U.S. SUV sales dipped 1%.

Production in $1.6-billion Alabama plant is expected to start in 2021. The company has started hiring and the construction is on schedule. The plant is slated to hire up to 4,000 employees and build 3,00,000 vehicles on an annual basis. Among the U.S. states, Alabama is the fifth largest producer of light trucks and cars.

However, there are a few headwinds that can make a negative impact on the plant. Sales in the U.S. auto industry have witnessed a decline. New vehicle sales in the United States fell 2.2% in the first half of 2019. This is likely to exert pressure on vehicle prices and aggravate the problem of overcapacity.

Nevertheless, the company still relies on its Mississippi plant and Japan for the production of Corolla cars.

In the past six months, Toyota has outperformed the industry it belongs to. During the same time frame, the company’s shares have inched up 1.5% against the industry’s decline of 3.8%.



Zacks Rank & Stocks to Consider

Toyota carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the auto space are Ford Motor Company (F - Free Report) , CarMax, Inc (KMX - Free Report) and AutoZone, Inc (AZO - Free Report) . While Ford sports a Zacks Rank #1 (Strong Buy), CarMax and AutoZone carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ford has an expected long-term growth rate of 7.3%. In the past six months, shares of the company have gained 12.5%.

CarMax has an expected long-term growth rate of 12.57%. In the past six months, shares of the company have rallied 34.8%.

AutoZone has an expected long-term growth rate of 12.2%. In the past six months, shares of the company have surged 38.9%.

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