Toyota Motor Corp. President Akio Toyoda said July 13 that the company would strengthen its production bases in the Tohoku region of northern Honshu, where personnel costs are cheap and its manufacturing lines are new.
"Toyota is a global company that was brought up in Japan. By all means, we will implement tasks to strengthen 'monozukuri' (conscientious manufacturing) in Japan," Toyoda told a news conference.
The decision offers a way to overcome severe management challenges, including the strong yen, and reap benefits from exporting, Toyoda said.
However, there is no guarantee the carmaker can maintain its current domestic production levels. Management sources do not deny the possibility that Toyota may eventually be forced to cut back on its production in Japan.
At the news conference, Toyota announced it would make Kanto Auto Works Ltd., which has production bases in the Tohoku region, a wholly-owned subsidiary and integrate it with its two other subsidiaries, Central Motor Co. and Toyota Motor Tohoku Corp.
In addition, the company said it would also make group member Toyota Auto Body Co. a wholly-owned subsidiary.
Toyota plans to build a total of 7.39 million cars worldwide in fiscal 2011. Of those, 3.03 million will be produced in Japan, including those for export.
The decision to shift production to Tohoku comes as the company works to maintain its domestic production forecast of at least 3 million units.
Toyota expects to book consolidated operating profits of 300 billion yen (about $3.8 billion) this fiscal year. However, the automaker, which handles domestic production and exports, is likely to fall 400 billion yen into the red on an unconsolidated basis this fiscal year.
Because of the soaring value of the yen against the dollar, profits from exports are shrinking. Toyota heavily depends on exports, and it loses a staggering 30 billion yen in consolidated operating profits every time the currency rises by a single yen.
To cut its losses, Toyota plans to entrust design and development to its subsidiary. As well, strengthening production in Tohoku will give Toyota its third manufacturing hub after the Tokai region, where Toyota Motor is headquartered, and Kyushu in the south.
"We will raise the local content of auto parts in the Tohoku region," Toyota Motor Vice President Atsushi Niimi said at the July 13 news conference.
That indicates Toyota will spread out its parts production bases, now concentrated in the Tokai region, in part because a powerful earthquake has long been forecast to hit the Tokai region at some point.
Iwate Governor Takuya Tasso welcomed Toyota's plan to expand in the Tohoku region.
"It's a big step forward as it will lead to construction of an integrated production system (in the region)," he said.
However, Tohoku is currently under a law, imposed after the March 11 Great East Japan Earthquake, that limits electricity usage. A source related to Toyota warned that strengthening production in the Tohoku region as a manufacturing base for small cars carries risks.
Raising production in Tohoku may well result in a decrease in production in the Tokai region, unless the company's overall domestic production increases, said a local government official in Aichi Prefecture, which is part of Tokai.
Moreover, some of Toyota's Tokai production lines are aging. "We will stop operating those lines in the future," Niimi said.
Other major carmakers are accelerating the transfer of production bases overseas, where they can avoid electricity shortages and the stronger yen's effects.
Last year, Nissan Motor Co. stopped producing its mainstay compact, the March, in Japan, and transferred production to Thailand and elsewhere.
Mitsubishi Motors Corp. also plans to make its next mainstay small car in Thailand, starting in 2012.
Local governments in the Tohoku region fear that manufacturers could shift their production bases overseas.
Miyagi Governor Yoshihiro Murai said he was grateful for Toyota's plan to increase production in the Tohoku region, but had some reservations.
"In view of the tax system and (no measures taken against) the higher appreciation of the yen, I feel as if the central government is taking policies that lead companies to transfer their production bases to other countries," he said.
"I don't know how long the (planned) integrated company (of Kanto Auto Works, Central Motor and Toyota Motor Tohoku) will stay in Tohoku."
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