Toyota Not Planning to Resume Construction at $1.3 Billion Prius Plant in Mississippi Despite Order Increase

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Researched by Industrial Info Resources (Sugar Land, Texas)--When gas prices reached record highs during the summer of 2008 and sales began to dip as consumers clamored for smaller, more fuel-efficient vehicles, Toyota Motor Manufacturing North America (Torrance, California), the U.S. arm of Toyota Motor Corporation (NYSE:TM) (Toyota City, Japan), decided to alter what they would be producing at their planned facility in Blue Springs, Mississippi, that was under construction. Initially the plant was scheduled to begin assembling Highlander SUVs, but with the change in the market Toyota felt that assembling the Prius at the new plant would be most beneficial for their overall strategy in the states. However, once oil and gas prices began to tumble once again, the outcry for those vehicles faded away and as the U.S. fell deeper into a recession, and Toyota itself was faced with record losses, the decision was made to place the entire project on hold until things stabilized.

Now that the economic recovery is beginning to take shape, Toyota has opted to keep the project on hold, even though the company received 180,000 orders for the new third-generation Prius model in Japan during the month of May alone. The new Prius model, which has a larger 1.8-liter engine and gets better mileage than the previous model, was rolled out a month ago and has not looked back since. First-month sales in Japan for May topped 10,000 units, easily surpassing Honda Motor Company's (NYSE:HMC) (Torrance) sales on its new Insight hybrid. While initial sales in the U.S. were slight -- 700 units in the first month -- the new model is rolling off the lots almost faster than it can be produced in Japan.

This begs the question: Why is the Mississippi project still on hold? Toyota is taking a wait-and-see attitude with the American automotive market. Until automotive sales pick up in the U.S., the project will likely remain on hold. At this point, Toyota is not even certain whether the Prius will remain the model that will be produced at the new facility once construction is completed. Toyota is in the midst of re-evaluating its product lines and while it claims it is committed to the Mississippi plant becoming a reality, it essentially has no clue what exactly the new plant will produce.

This places an enormous burden on the suppliers that moved into the area, building their own plants, to supply the new Toyota plant. These tier suppliers will be forced into a wait-and-see approach, as well, since they simply do not have any clue as to what exactly they should be producing. Many of the suppliers had not begun construction on their own facilities so they are not in total limbo, although they had gone as far as to design plants and begin ramping up for the construction effort. But some suppliers had already begun construction and for them the wait must be difficult.

Hopefully the U.S. automotive marketplace will turn itself around once General Motors Corporation (OTC:GMGMQ) (Detroit, Michigan) emerges from bankruptcy and we see into what the company has reinvented itself. With Chrysler LLC (Auburn Hills, Michigan) already beginning to ramp its production back up by opening its plants once again, all that the automotive sector is waiting on is GM to be redesigned into the efficient beast that it must turn into in order to survive. The coming months are going to be very interesting as the automotive sector in the U.S. totally transforms itself into something else. Not only will Toyota and the other foreign automakers be watching this transformation closely but so will the American public, who now are essentially stockholders in both Chrysler and GM.

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