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Toyota Will Shut California Plant in First Closure (Update3)

By Alan Ohnsman and Kae Inoue

Aug. 28 (Bloomberg) -- Toyota Motor Corp. will shut an assembly plant for the first time in its 72-year history after the failure of a joint venture with General Motors Corp.

New United Motor Manufacturing Inc. in Fremont, California, will end production of Corolla cars and Tacoma pickups in March 2010, Toyota said in a statement. GM in June said it would end assembly of Pontiac Vibes at the plant, known as Nummi, and quit the venture as part of its bankruptcy reorganization.

A collapse in U.S. auto sales to the lowest level since 1976 has left Toyota, the world’s largest automaker, struggling to keep North American plants running at capacity. Closing the San Francisco Bay area plant, where Toyota President Akio Toyoda spent two years, compounds economic woes in California, suffering from an 11.9 percent unemployment rate.

“Toyota urgently needs to cut capacity as car demand isn’t going to return to its peak anytime soon,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc. in Tokyo, which manages about 800 billion yen ($8.5 billion) in assets. “Nummi is unionized and expensive to operate. It’s a good decision.”

‘Devastating News’

Nummi employs 5,400 people, including 4,550 United Auto Workers union positions. More than 1,000 suppliers work with the factory, which has annual payroll and benefits of $523 million, according to a plant publication. Possible severance packages for the workers have not been decided on, according to Toyota spokesman Yuta Kaga. Nummi, set up as a joint venture, will decide whether to keep or shut the plant.

Toyota’s announcement “is devastating news for thousands of workers in California,” said UAW President Ron Gettelfinger. “They deserve better than to be abandoned by this company.”

Toyota will shift production of Tacoma pickups to San Antonio and move Corollas to its factory in Ontario, Canada. The carmaker said it would consider hiring Nummi workers at other factories.

“Toyota will not be able to give priority to Nummi workers though,” Toyota Executive Vice President Atsushi Niimi said on a conference call with reporters.

Toyota shares were unchanged at 4,040 yen in Tokyo. The shares have risen 39 percent so far this year, outpacing the 19 percent gain in the Nikkei 225 Stock Average.

U.S. Sales

Toyota’s sales in the U.S., its largest source of revenue, fell 38 percent in the first half, following a 15 percent decline last year. Toyota had a record 436.9 billion yen loss in the fiscal year that ended in March, its first in six decades, and forecasts an even bigger 450 billion yen loss in the current business year.

“By closing the plant and moving production to other factories, Toyota’s utilization rate in North America will improve,” said Masatoshi Nishimoto, an analyst at auto consulting company CSM Worldwide in Tokyo.

Nummi has the capacity to make 420,000 cars and pickups each year. It only made money in 1992, the result of California’s taxes and labor and pollution rules, as well as the plant’s UAW contracts, according to an estimate by Credit Suisse Group AG analyst.

Toyota has about 2 million units of capacity in the U.S. and about 10 million units globally. The Nummi closure will reduce capacity by about 400,000 units. Earlier this week, the carmaker said it will shut an assembly line at a domestic factory from 2010 to 2011.

West Coast

Shared by GM and Toyota since 1984, Nummi was Toyota’s first U.S. auto-assembly factory. It’s the only large auto- assembly plant on the U.S. West Coast.

“We continue work already in progress with the U.S. Departments of Labor and Commerce, local government officials, Toyota, GM and the Japanese government to ensure appropriate employee severance, proper environmental remediation and assistance in transforming the site to alternative uses,” California Governor Arnold Schwarzenegger said in a statement.

GM was the factory’s sole owner from 1963 until 1982, when it closed the Fremont Assembly plant owing to escalating costs and labor conflicts with union workers. Toyota initially invested about $150 million to renovate the plant and GM contributed the property and original factory building to create the joint venture.

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