By on July 7, 2009

Bloomberg reports on Toyota’s pickle vis-à-vis Fremont, California-based NUMMI. New GM is leaving its NUMMI ownership share in the hands of Old GM. Thus, Old GM and Toyota together own NUMMI in a 50/50 joint venture. Old GM will be selling off its moribund assets over a period of a year or more as the long slow process of liquidating the discards and paying creditors pennies on the dollar plays out. (Old GM is looking like an economic stimulus program for a small band of lawyers, accountants and realtors.)

Back in 1984, Roger Smith’s GM provided the land and buildings as its contribution to NUMMI and Toyota pumped in at least $100M cash money, along with manufacturing know-how. According to Bloomberg’s reporting, NUMMI has only turned a profit in one year, 1992. But, Bloomberg fails to mention that the internal transfer pricing games are routinely played by large companies in order to recognize profits only in the most tax advantaged jurisdictions. So, outside of the bean counters at Toyota and GM, nobody really knows the profitability of NUMMI. However, everyone does know that Northern California is generally an expensive place to do business. Also, everyone also knows that the only UAW members building Toyotas are at NUMMI.

Toyota faces the question of whether to buy out GM’s share of the venture at auction, let a third party buy GM’s share, or simply wind the whole thing down. “Toyota officials in Japan and the U.S. have said GM’s decision to leave the shared plant makes its position ‘even more difficult,’ amid grim market circumstances.” Understated enough for you?

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21 Comments on “NUMMI Not So Nice for Toyota...”

  • avatar
    Richard Chen

    Doesn’t Tesla still need a physical plant or two? Their HQ isn’t far away.

  • avatar
    Geo. Levecque

    Close this Plant and let the Canadian operation of Toyota pick up the slack and the whole output, it already makes Cars for the US market in any event, the plant in Cambridge Ontario also makes the Lexus, one model only but does produce quality products, the RAV4 is also made here in Ontario at the Woodstock Plant.

  • avatar

    @Geo Levecque I wasn’t aware that Toyota released
    thier quality stats plant by plant.

  • avatar

    It just doesn’t make sense for Toyota to keep NUMMI now. They could consolidate their truck production by building the Taco alongside the Tundra and move the Corolla/Vibe production to Cambridge. They would be solving a fair bit of their problem with over-capacity while eliminating what is probably their highest cost plant.

    They could justify the whole thing easily enough by blaming their failed joint venture partner, old GM.

    On the other hand, if Toyota buys GM’s 50% stake now and operates the plant for a while on their own then they’ll end up with all of the bad publicity if they close the plant later. In this case being cautious with their NUMMI stake now could be quite costly down the road.

  • avatar

    I’d guess that Toyota is boxed in.

    Toyota can’t shut down the operation while their partner holds a valid interest. Similarly, Toyota can’t unilaterally sell their portion while they have a partner.

    Toyota’s only choice is probably to buy out the parner’s interest, then shut the facility down. Will Toyota want to keep it running? NFW – the sooner the company gets rid of its UAW millstone, the better.

    IMO, Toyota’s new management is being brought in to make rapid, painful decisions just such as this, and to un-make previous mistakes. In Japan’s culture of denial, it would perhaps be difficult for the old leadership to backtrack out of a blunder.

    That said, there is one other possible outcome: the Obama administration offers Toyota an enormous bribe to keep NUMMI operating — perhaps via “loans” for re-tooling, subsidies for employee costs, and then by buying the output, which will may become some form of Obamamobile. Team Obama is not one to miss an opportunity to expand government into new involvements. Despite this, I think Toyota would be wise to just say No and close the doors. Getting tangled up with the Washington octopus is very poor strategy, and Toyota is trying to return to effecting planning for the long term.

  • avatar

    They don’t have partner any more, Old GM is just a financial investor at this moment of time and can easily be bought out.

  • avatar

    How much money does Mr. Penske have left?

    Lowball old GM for their stake in the factory (Really, who else is going to want it?), and you would have some reliable, economical vehicles in the stable for Penske’s International Auto Emporium Saturn.

  • avatar

    Saturn Vibe. Done.

  • avatar

    Put a fork in it. As soon as Toyota can shut it down, it’s gone.

  • avatar
    John Horner

    “IMO, Toyota’s new management is being brought in to make rapid, painful decisions just such as this, and to un-make previous mistakes.”

    Don’t forget, NUMMI was established in 1984 and was a UAW operation from the get go. It was Toyota’s very first North American manufacturing location and is what gave Toyota the confidence to build other North American factories.

    Perhaps Toyota will shut NUMMI down, but I don’t think that new CEO Akio Toyoda believes his father Shoichiro Toyoda made a mistake when setting up NUMMI.

  • avatar

    California is their largest US market by far. California is also broke. Toyota does not want the bad publicity of killing jobs and shutting off tax dollars to CA. As far as political entanglement, they are up to their ears in it and always have been. How do you think the Prius tax break happened?

  • avatar
    John Horner

    Good point Juniper. Oddly enough, Toyota has long been pretty low key about trumpeting its California manufacturing facility as a selling point here in California.

  • avatar

    It just doesn’t make sense for Toyota to keep NUMMI now. They could consolidate their truck production by building the Taco alongside the Tundra and move the Corolla/Vibe production to Cambridge. They would be solving a fair bit of their problem with over-capacity while eliminating what is probably their highest cost plant.

    What do you mean it doesn’t make sense? Keep the plant, bring Prius production stateside, no more 5-month waiting lists to get a hybrid.

  • avatar
    Ken Elias

    NUMMI is a JV assembly facility effectively. It is designed to sell its vehicles at cost to its partners. The problem for Toyota is now maximizing production out of the plant. Unfortunately, Toyota doesn’t need any more production capacity.

  • avatar
    Geo. Levecque

    GM has said that the Vibe model is dead, the last one being produced at Nummi is next month! I expect that GM will rely on there new small Car production instead?
    I have seen the Cambridge Factory here in Ontario, it was chosen to produce the Lexus model,the only Lexus plant outside of Japan because of the quality of the Work that the Workers there produce, its probably because they are Non Union that the workers have the right attitude whereas in Union plants its almost a Dog eats Dog atmosphere.!Continued grievances are the norm in Union plants and that’s why we get “lemons”from time to time, at least you people in the USA have lemon laws whereas here in Canada, we are more or less on our own except for Onvic!

  • avatar

    I always thought the Vibe should have been a Saturn. Penske buying into NUMMI to produce a vehicle for his company seems like a solid idea.

  • avatar
    Rod Panhard

    It’s Toyota’s factory just as much as GM’s, right? So Toyota knows the value better than just about anyone else.

    Perhaps Subaru may want part of it, since they’re both in the same happy family, and both make cars and light SUVs for sale in North America.

  • avatar

    What few on the blog seem to know is that NUMMI quality is very high. It is also the oldest Assy. plant Toyota has in the USA. Last Toyota
    audit NUMMI scored 0 defects something that no other NA Toyota plant has done. Also most of the Corolla’s build at NUMMI are sold in Ca. or the west coast. Why should they be built by another country__Canada? Anyone who understands the automotive business and tooling required, knows that if Toyota moves the current models from NUMMI before their model life is up they will really lose money!

  • avatar

    So what value does the NUMMI partnership bring to Toyota these days (even if GM was still viable)?

    Toyota knows how to do business here. They have other factories. They know how the UAW does business. They know how GM does business. What is in it for them?

  • avatar

    It seems to me that the Cambridge Factory workers in Ontario have been trying to get the UAW in there for a number of years.
    It’s also a good thing that the GM, Ford, and Chrysler are here in the USA for Canada otherwise they would have had to get their cars from England the last 90 years. That’s right Canada has not designed a car nor much else on thier own.

  • avatar

    More than you could possibly understand.

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