Video: Toyota halts work on new factory as Big 3 wait

updated 12/15/2008 6:16:56 PM ET 2008-12-15T23:16:56

Toyota Motor Corp. is shelving its plans to build the popular Prius hybrid in Mississippi as the slump in the auto industry continues to hobble the Japanese carmaker known for it emphasis on fuel-sipping vehicles.

Toyota’s plant under construction in Blue Springs, Miss., was scheduled to begin production in 2010, marking the first time the gas-electric Prius, which has been on sale for more than a decade, would be built outside of Japan and China.

But Mike Goss, a spokesman for Toyota’s U.S. arm, said Monday that despite investing $300 million in the plant so far, the automaker is delaying production there indefinitely because of the industrywide downturn.

Construction of the plant is about 90 percent complete, and Toyota will finish the building, Goss said. However, the installation of the factory’s equipment and machinery — “the most time-consuming” element of construction, he said — is delayed indefinitely.

The roughly 100 people who have been hired to oversee construction and install human resources plans at the plant will not lose their jobs and will be assigned other duties, Goss said.

“Those people’s jobs are safe, and we’ll find things for them to do,” he said.

Mississippi Gov. Haley Barbour said at a news conference that the state has invested $200 million in the plant, while local governments have invested about $35 million. He said Toyota plans to work with state and local governments to mitigate extra costs caused by the delay.

“While we definitely are disappointed (and) wish it wasn’t happening, we understand that these companies like Toyota have to operate in the private marketplace and have to do so successfully,” Barbour said.

Although Toyota’s U.S. sales have held up better than those of its Detroit-based counterparts, the entire industry has seen a steep plunge because consumers are skittish about making big purchases during the recession, and it has been more difficult and more expensive for some buyers to obtain financing in the tightened credit markets.

Toyota reported its auto sales in the U.S. fell 34 percent in November, while sales across the industry sank 37 percent. The company’s sales are down 13 percent for the first 11 months of the year compared with the same period in 2007.

The Toyota City, Japan-based automaker has also seen volumes of its once-popular hybrids plunge amid the collapse in gasoline prices. The Prius was a brisk-seller earlier this year as a gallon of gas fetched well over $4 a gallon, but U.S. sales plunged 48 percent in November. Toyota’s other hybrids, like gas-electric versions of the Camry sedan and Highlander sport utility vehicle, are facing even bigger sales declines.

There are also signs that Toyota is starting to feel the slowdown in sales globally as demand in emerging markets like China, India and Latin America weaken. Toyota last month slashed its profit forecast for the fiscal year that ends in March to 550 billion yen ($5.9 billion), one-third of its previous year’s earnings.

David Rumbarger, president of the Community Development Foundation, a northeast Mississippi development group that helped lure Toyota to the state, said he’s disappointed with Toyota’s decision to delay the plant but understands it, given the industry’s flagging sales.

“Obviously, in these economic times we need every job we can get, but we’re patient,” he said.

Seven suppliers have announced plans to open near the Toyota plant in Mississippi. Rumbarger said each will evaluate its own business plan and decide when to open.

Toyota first announced plans for the Mississippi plant in 2007 and said it would make Highlander SUVs, but the company said this summer it would build the Prius there instead. Back then, Toyota couldn’t keep up with demand for the hybrid, which gets 46 miles per gallon on average and remains the highest-mileage passenger car on the U.S. market, according to the Environmental Protection Agency.

The plant, northwest of Tupelo, Miss., was initially to be up and running in late 2009 or early 2010, but Toyota pushed the date back to mid-2010 after seeing signs of a slowdown in the U.S. auto market earlier this year.

Toyota has made other cutbacks recently to adapt to declining vehicle demand. Last week, the automaker announced production cuts at factories in Indiana, Kentucky and Canada, on top of other reductions in November, when Toyota also cut several hundred contract workers.

The company has 14 manufacturing facilities in North America, including one in California that is a joint-venture with General Motors Corp.

Toyota isn’t the only foreign automaker with plans to expand in the U.S. Volkswagen AG said in July that that it would build its first U.S. assembly plant in Chattanooga, Tenn.

VW officials have said they are sticking with their plans for the plant to begin making cars in 2011 because that’s is a critical part of its goal to boost sales in the U.S. to 1 million a year by 2018, or more than four times the number sold last year.

Kia Motors Corp. also plans to open an assembly plant at West Point, Ga., in 2009.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 3.79%
$30K home equity loan FICO 4.99%
$75K home equity loan FICO 4.69%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.83%
13.79%
Cash Back Cards 17.80%
17.78%
Rewards Cards 17.18%
17.17%
Source: Bankrate.com