By on February 16, 2011

Today, I saw a new, and so far the finest specimen of Japan’s new export products: A car factory. Remember when the Nikkei wrote about a new Toyota factory in the Miyagi Prefecture with a U-shaped assembly line where the assembly time is cut down to a third? Not only did they get it wrong. They missed the best part of the story: Budget car factories, ready for export. Of course, that’s not how it was sold to the natives.

Ohira is a little village near Sendai. Sendai is a town two Shinkansen hours north of Tokyo. The area is famous for its beef tongue, not the hottest export item. Ohira was known for exactly nothing until Toyota decided in 2007 to relocate their factory from Sagamihara, in the outskirts of Tokyo, up into the woods of Ohira.

A year later, the whole region went into shock: One of the many consequences of the 2008 financial crisis was that the Ohira plant was put on hold. In late 2009, matters looked a little better, and the plans for the plant were revived. Earth was moved in Ohira. The highway received a new exit. Families in Sagamihara scheduled their move north. Today was the grand opening.

The opening of a car factory is a rare occasion in Japan, a land that is more known for its factory closings. The strong yen put a crimp into the formerly flourishing car export business. As a matter of fact, the Ohira plant is Toyota’s first new Japanese plant in 18 years. Ever since Toyota opened their Iwate plant in 1992, Toyota built many plants elsewhere in the world, but none in Japan. Actually, Toyota had made a lot of noises lately that they might close more factories if the yen stays strong. This was a historically important moment, and having been invited, Frau Schmitto-san and I ventured north.

This morning, idyllic Ohira was mobbed by members of the media, politicos and half of Toyota’s sprawling board. Toyota’s President Akio Toyoda was excused due to health reasons, TMC Chairman Fujio Cho came as a stand-in.

Everybody is talking about low cost cars, and how important they are, especially in emerging markets. What’s the secret sauce for low cost cars? Low wages? Wrong, I learn today. The secret is low cost factories.

“60 percent of the cost of the car is the investment into the plant. 20 percent is the parts that go in the car,” says Toyota’s photogenic Executive Vice President Atsushi Niimi. He does not say what the remaining 20 percent are, presumably labor, something he does not want to mention in front of local leaders who want jobs, jobs, jobs.

And indeed, Toyota’s first new Japanese plant in 18 years is a modern marvel of savings.

The relative lack of robots is the most striking item for someone who learned the trade back in the 80s around Volkswagen’s dimly lit and fully automated Halle 54: Sure, there is a gang of stout robots that weld heavy pieces together. Otherwise: Less automation than in some Chinese factories.

Since the turn of the millennium, Toyota has been slowly backing away from heavy automation. The labor saved by robots was wasted by fixing and most of all by reprogramming robots. Ohira is the current culmination of this trend.

For the first time in 30 years, I see people welding by hand. Someone is even putting a rotary sander to a primed body before it enters the paint station. If Ferdi Piech would see that in Wolfsburg, he would stop the line and fire the factory manager. Why less automation? More flexibility, lower investments.

The cars no longer dangle from the ceiling while parts are attached from below. They roll on a simple raised platform. This reduces the ceiling height of the factory. Advantage: 50 percent of the investment saved, says Toyota. A side effect of the non-dangling is that people can work on a stationary object, instead on one that dangles.

There also is no more marriage or wedding station where the upper part of the body mates with the undercarriage, a process that always elicited raunchy jokes when I had to attend (not for public consumption) factory tours at VW in the really olden days.

Where the car moves along the floor, factories usually have below ground pits that house the motors, chains and gears that keep the line moving. Not in Ohira. Here, the cars move on maybe a foot high conveyor system that is simply bolted into the concrete flooring. Advantage: Cheaper to build, cheaper to tear down and rebuild somewhere else. The line can be lengthened or shortened at will. The assembly line doesn’t “grow roots” as they say in Toyota-speak.

Usually, cars move along an assembly line in a vertical line, as if they already are sitting in a slow moving traffic jam. Not in Ohira. Here, the cars move sideways. Think of a parking lot down at the mall. Now move the parking lot to the right. Advantage: With the cars moving sideways instead of straight ahead, the line can be 35 percent shorter. The factory can be smaller. The expenses are lower.

The paint spray line of a car factory usually is a highly complex system that is built in place. Very expensive parts and experts have to be flown in. Not in Ohira. For Ohira, Toyota developed a modular paint spray line. The modules can be built somewhere else and are assembled at the plant in a much shorter time. Advantage: Cost savings. However, you don’t build a modular paint spray line factory somewhere unless you intend to build a lot of paint spray lines.

Usually, cars get three coats of paint, usually water-based, and usually each coat is dried with heat.  Not in Ohira. Here, the third coat is applied onto the still wet second coat and both are dried together. Advantage: Huge energy savings, faster paint time. Lower expenses.

Of course, the new Ohira plant is green, or “harmonious” as they say here. Its carbon footprint is a third lower than originally planned, its VOC emissions are reduced by a third. Oddly enough, a car factory produces a lot of wastewater. Ohira has a water treatment plant that emits water safe for Japanese Koi fish, a fickle breed that goes belly-up if there is just a bit of pollution in the water. In Wolfsburg, they use rugged German carp, and sometimes they look a bit worse for wear.

The plant is a secretive plant. “No photo! No sketch!” warns a handout. Photo-ops are limited to two stations. One at the welding robots. One where people work on the car. Equal time.

I walk down the line with Roger Schreffler of Ward’s Auto, an old warhorse for whom car factories are what race-cars and fast women are to Jack Baruth. Like Jack, Roger has seen them all. I ask Schreffler what the most striking aspect of this plant could be, and he answers without hesitation: “The low investment. They must have saved huge amounts of money. Even the equipment is from lower cost suppliers.”

All the numbers add up perfectly, except these: It’s a small plant. Pocket sized as car plants go. 900 employees. Only 250 units a day, we hear during the plant tour. The compact size is stressed every step we go.  Once everything is ramped up, 1,900 people will be able to make 120,000 units here. A compact car factory in the true sense of the words.

Toyota’s  plant in Kentucky makes 2,000 units a day. In Ohira, the area where cars awaiting shipment are parked holds maybe 1,000 cars. Bloomington’s Mall of America has 20,000 spaces. But Ohira has a few hundred feet of intentionally rough road to detect any rattles or squeaks before the car is shipped.

Hope-inspiring: On the other side of the fence is an empty space that could double the size of the plant. But this is where suppliers usually pitch their tents. Just in time manufacturing.

Toyota’s declared policy is to build new plants close to their markets. What does Ohira build? A car for America. Only one car for now. The sedan version of the Yaris. Not the Vitz, which is the Yaris Japanese spec. And not the Belta, which is the JDM sedan version of the Vitz.

Up in the woods, they build a Yaris for export to America.  In April, they will bring up the Corolla Axio and turn the key on Sagamihara.

Will the Yaris be trucked the 20 miles to Sendai port (which received improvements to its docks because of Toyota) and shipped to America, asks a member of the local press. Oh no, says Niimi. “The cars will be shipped from Sendai to Nagoya, and then they go on the boat with the other 5000 to 6000 cars. This plant doesn’t have enough volume.” Then why build the plant? Will the plant make hybrids? Evasive answers. Plugins? Evasive answers. Will Ohira get an engine factory? Evasive answers.

When asked whether the small plant could be a pilot for new plants in emerging markets, Niimi adroitly sidesteps the question, but answers it between the lines: “This plant will play a huge role in strengthening our worldwide network.”

Suddenly, it all makes sense. This plant is the perfect export item to emerging markets. Low cost. Can be built anywhere, even into an existing building if necessary. No pits, no overhead rigging. Special equipment (such as the paint booth) can be brought in as modules from Japan. No heavy investment into automation. If people are cheaper than robots in Ohira, guess how much cheaper they are in China, India, Indonesia. Can expand and contract. Doesn’t grow roots. Can be uprooted if necessary and taken elsewhere. 250 units a day, ideal size for a start in some other backwoods. If Toyota can develop a car for developing markets, why not make a factory to go with it?

Back at the train station, we are surprised by a fresh copy of the Kahoku Shinpo, Sendai’s hometown paper. It belies the popular wisdom that the web will kill media printed on dead forests. Not in Japan: Half an hour after the festivities in Ohira come to an end, the paper is at the stands, with the big news from the small village as the top story. No mention of any export plans. Let’s not disturb the festive mood.

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28 Comments on “Toyota’s Secret Weapon: Low Cost Car Factories...”


  • avatar
    Philosophil

    What a great article. This is a perfect illustration of the old adage that sometimes less is more. When you keep things simple, it is much easier to adapt it to new situations and needs. The more specialized and technical something becomes, whether its cars or factories (or even living organisms), the greater the risk that it will only survive and thrive in extremely specialized environments. Change those environments even slightly and the highly specialized entity (or process) is placed at serious risk.
     
    This may well end up being a brilliant strategy, for as you say it would be widely adaptable to a variety of social/geographical environments. It’s a great illustration of the point I was making a while back that the ‘best’ product or process need not always be the most technologically advanced.
     
    One problem that this more heavily, hands-on process will likely face is quality control. There will likely be a greater chance of increased variation in the quality of product from day to day, and perhaps even worker to worker. A common standard of quality is one of the advantages of robotics and mass machinery in general, and allowing more room for worker variation may have some interesting consequences in that regard.

    • 0 avatar
      redliner

      I belive you are right. This system has the potential to produce lower quality cars. It realty depends on the attitude of the workers and by extension, Toyota’s corporate attitude. Maybe the Yaris is just a test. If it works out, perhaps they will expand/export this factory system and build more expensive cars.

    • 0 avatar
      stationwagon

      In my experience low quality products are caused by, crappy materials and workers under too much pressure. If you have a production line that moves slow enough and give the worker good tools and material. you will have a better product.

  • avatar
    hreardon

    Bertel -

    Great article, thanks for the information. Fascinating.

  • avatar
    stuki

    Like others have said: Great Article!
     
    I can think of only two reasons to de-robotize in a country where it seems the last kid was born 50 years ago, and the last worker is set to retire in about a decade: Planning to build more of these plants i low labor cost, possibly unstable regions, hence wanting iron out the processes in a familiar environment first; or possibly realizing all those highly trained, soon to retire Japanese workers will be back looking for work, once the Japanese government defaults on the bonds their pensions depend on.

  • avatar
    Zackman

    Does this mean Afghanistan will be building cars soon?

  • avatar
    Sinistermisterman

    Great article. Thanks Bertel.
    It all makes perfect sense though, as shipping complete cars is far more costly than shipping the boxed components and rolls of steel.
    Despite all the negative press Toyota have had recently, when ideas like this become reality, I really do think they are still a force to be reckoned with.

  • avatar
    Paul Niedermeyer

    Good article, Bertel. The fact that about 60% of the production cost of a car is in the embedded cost of the plant is the key fact to take home. It is of profound significance, and underscores perhaps the biggest misconception that is endlessly perpetuated about the car industry: why the endless push to increase sales through incentives if it’s (presumably) going to reduce the profitability of that car?

    This explains it perfectly: it only costs 40% of a car’s “cost” to build one more. So the overwhelming objective of manufacturers is to maximize the capacity of their plants. Of course, that can be taken to extremes, as history has shown so well. But the additional huge profit on each incremental unit is where the big bucks are made. It’s a matter of balancing those factors.
    And obviously, lowering the price of the factory will be a huge new step too.

    I happen to believe that with the long term cost of energy increasing, we will see more localized production of cars, and factories like these point the way.

    • 0 avatar
      kitzler

      If the cars move sideways, it implies the workers have to walk around each vehicle to get to the next one?  Probably a good way for them to avoid leg cramps when you stand too long in the same place.  Still we are talking an extra mile or mile and a half a day.

    • 0 avatar
      amca

      That 60% of the cost being the plant – that doesn’t hold up.  Say the Georgetown, KY Camry plant cost a billion dollars to build.  And it cranks out around 400,000 cars a year.  That means $2,500 in capital is tied up per car built per year.  And say the carrying cost of that capital is 6%, then we’re talking cost per car for the capital tied up in the plant is $150.  That’s not that much at all.  Labor, 20 hours worth at $40 all in with benefits, is $800.
      Still, the plant is brilliant.  Portable, scaleable, reproduceable.  Fiendishly clever.  And I love the fact that hand labor is coming back into fashion, so to speak.

  • avatar
    Slow_Joe_Crow

    My first thought is that Toyota has added  a new phrase to its vocabulary “copy exact”. This factory looks like the precursor for  series of factories modeled on Intel’s fab building system where a development fab is built close to home where all the top engineers are located and once the process is developed and refined it is replicated to other fabs in lower cost areas. Ohira appears to be a prototype for a low cost factory for local production in other markets.

    • 0 avatar
      Robert Schwartz

      Intel dominates the semiconductor industry because it is the best manufacturer, Toyota makes cars better than other OEMs. Neither company makes great products, but they both can make them well, and cheaply, faster than their competitors.

  • avatar
    obbop

    “Like others have said: Great Article!”
     
    Ibid.
     
    Sendai.
     
    Okay, off-topic.  SHOCK!!!!!!!!!!!!!!!!!!!
     
    Old Fart off-topic? Color me surprised.
    Coot Recommended Reading:
    Book covering all or in part WW-2 era Sendai Division of the Japanese Army.
    Famous (infamous) in a way kinda’ akin to Allied units that excelled among their peers.
     
    Hey!!!!!!!! Sure they were the bad guys but societal and peer pressure along with life-long intense total immersion in Japanese culture/society/acculturation/propaganda did not allow individual societal members much opportunity to shun or avoid forced military duty.
    Still interesting reading for those with inquiring minds and at least a general interest in the topic and/or that era.
     
    This Official Coot Recommendation brought to you by Mopar Muscle Cars and auto-related country songs.
     
    “Driver’s Seat” stumbling through my head currently.

    • 0 avatar
      OldandSlow

      Holy smokes, the 2nd Division, 4 Infantry Regiment saw action against Zhukov in 1939 on the Mongolian border, after traipsing through China for a year.  This was three years before being sent to Guadalcanal, where they literally were starved of supplies in an equatorial hell hole and I should note that the US Marines weren’t that well provisioned either.
       
      As far as Guadalcanal is concerned, what an appalling place to have a war zone. It’s good thing for the thousands of US Marines on the island that the Japanese didn’t prevail, because the Japanese troops had orders that there would be no prisoners taken.
       
      The Japanese regiment’s final reward for their valor was to be sent off to Burma near the end of the war, where they were mostly annihilated.

  • avatar
    PeteMoran

    Ohira methods, design and flexibility will be implemented in Australia too. We had a presentation from Toyota Australia on this late last year. Some of the (lucky) ones were invited to attend in Japan. Damn, I wish I could have been there.
     
    Great read BS!

  • avatar
    JustPassinThru

    I’ll admit my prejudice:  My love for Jeeps not withstanding, I’m sold on Toyotas.
     
    Not for performance or styling or driving experience.  Because they’re exactly what they’re sold as:  Reliable, bulletproof transportation.  Quality of assembly is apparent on delivery; and it stays assembled and stays working.
     
    This, this reputation and execution of bulletproof quality, is not something that the company should be messing with.  And changing to entirely different methods of assembly will do exactly that.
     
    It’s the one thing, the ONLY remaining thing, that sells Toyotas.  If they lose that, they lose their market.
     
    This is not an encouraging development.

    • 0 avatar
      Acc azda atch

      JustPassinThru:
       
      Nothin like putting a recall on every vehicle they’ve made for the past 15yrs… to really put a hamper.. on the garbage they make.
       
      A car isn’t just Reliable, bulletproof transportation.
      Toyota is better than Chrysler…
      Definately better than GM in many respects.
       
      But.. having 4 ordered recall by the NHTSA on 4 different vehicles..
      A issue the domestics have never faced.. yet, says something, doesnt’ make the domestics better…

    • 0 avatar
      JustPassinThru

      Nothin like putting a recall on every vehicle they’ve made for the past 15yrs… to really put a hamper.. on the garbage they make.
       
      “Nothin” like a false claim, promoted by a government which is now not only arbitrer but a competitor…to make a Japanese company, which like Japanese culture is reflexively obedient, to cower.
       
      No business in Japan ever worked under a Chicago politician.  There is NO evidence, NONE, that there were true mechanical defects.  The worst I can see is an ill-designed factory floor mat which tended to slide forward.
       
      The charge was a sham to harm a Government Motors competitor at a time when GM desperately needed to show sales increases and profits.  And obviously, the ruse worked – you’re sold.
       
      But I distrust cars made by governments – whether it’s the government Yugo; the government Renault; the government Trabant, or the government Volt.  Owner experience shows those cars to be wildly unsatisfactory.

  • avatar
    wallstreet

    Bertel, do you ever smile?

    • 0 avatar
      JustPassinThru

      I suspect he’s not a smiley kinda guy.
       
      That said…it’s amazing to me how well someone who’s not from the States, whose native language is most likely not even English…how well he has down the informal pull-up-a-chair vernacular.  Bertel’s writings flow in such a natural way, perfect idiom…it’s uncanny.  I had to read a couple of his pieces carefully to realize he was relating his experiences with Volkswagen…in Germany.
       
      Keep on scowling, Bertel.  Your writing is fine entertainment alone.

    • 0 avatar
      B.C.

      Even the slightest smile might betray his true identity: international correspondent for the world’s snarkiest car blog.

  • avatar
    PeteMoran

    We were having an interesting discussion about this at the office today. We wondered if VW (or Ford for example) were to respond, how much of a head start have Toyota given themselves here Bertel? In terms of time, particularly.
     
    (Assuming it works, of course).

  • avatar
    joe_thousandaire

    I do not want to be anywhere near one of those Yaris (Yaris’s Yari?) that comes out of this plant, people may be cheaper welder’s than robots, but they’re nowhere near as good. I’d like as much of my car as possible not built by human hands please.

    • 0 avatar
      SpinnyD

      Not necessarily true, properly trained “people” can look at the weld quality and alert maintenance to a problem within a part or two, a robot will weld cars all day long sometimes really badly and never raise a peep. (yes, I’ve seen it happen many, many, many times)

  • avatar

    Mmh, beef tongue…
    Renault has already implemented a similar approach in Pitesti (Romania), as far as I remember (c.f. http://www.renault.com/en/groupe/renault-dans-le-monde/pages/renault-en-roumanie.aspx).
    Renault: “With the bulk of market growth now taking place outside Western Europe, the opening of RDCE is strategic for the Group. To be competitive, Renault needs to be close to local customers and to fast-changing consumer tastes on new markets.”

  • avatar
    Adub

    Articles like this are what set TTAC apart from other websites (and buff books). Keep it up!

  • avatar
    JeremyG

    Great article.  The concept of a low cost plant reminds me of Nucor Steel, who revolutionized the steel industry in 1969 by building the first steel arc furnace mini-mill, a smaller, leaner, cheaper to build, more environmentally friendly, and more profitable approach to making steel than the old-style blast furnace steel mills.


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