Toyota Expands Canada Manufacturing As Hedge Against Strong Yen

on July 24 2012 11:55 AM
Toyota workers inspect the new Lexus ES vehicles at a Toyota plant in Miyawaka
Toyota workers inspect the new Lexus ES vehicles at a Toyota plant in Miyawaka Reuters

The strength of the Japanese yen has continued to push major Japanese manufacturers to shift production abroad, a trend exemplified by Toyota Motor Corporation's (NYSE: TM) announcement Tuesday it will spend $100 million to increase Lexus production at its Cambridge, Ontario, plant by 30,000 vehicles a year.

The move extends the trend of Toyota, Japan's No. 1 automaker, to boost North American production in recent months. It has lately added capacity in Indiana, West Virginia, Kentucky, Alabama and now Canada. Toyota's total North American manufacturing investment since the beginning of the year has reached $745 million, including the most recent factory expansion in Canada.

Since the beginning of the year, the company has added more than 1,500 jobs in North America, and the Canadian expansion is expected to employ 400 people.

This Lexus production increase, and the several announcements before, reflects our growing optimism for an improving North American market and our intent to localize more production, Toyota Motor Engineering and Manufacturing North America Executive Vice President Steve St. Angelo said Tuesday.

The value of the yen has climbed precipitously against the U.S. dollar since 2007. In June 2007, the exchange rate was 123.71 yen to the dollar, but in the intervening years, the yen has strengthened 37 percent to its current value of just 78.19 yen to the dollar. The increasing value of the yen against the dollar has cut into margins for Japanese manufacturers as it makes it more expensive to export products to the booming North American automotive market. The U.S. seasonally adjusted annual rate of car sales is expected to top 14 million in 2012 and to continue growing in 2013 and 2014, barring economic disruptions.

The expanded Canadian plant will produce 104,000 Lexus brand vehicles a year and represents an expansion of the company's plan of localizing production near consumer markets to help hedge against currency fluctuations and the effects of natural disasters like last year's tsunami in Japan and floods in Thailand which crippled Japanese automotive production. However, Toyota has long affirmed a commitment to producing 3 million vehicles a year in Japan.

The Canadian factory expansion does not represent an increase in total production for Toyota, rather, it is shifting production of 30,000 units from its Miyata factory in Japan to North America, according to Reuters. Different models will be shifted in to maintain production levels at the Miyata plant, which began producing the 2013 Lexus ES in July. The Lexus ES is primarily sold in the U.S., not Japan. Toyota plans to complete the Canadian factory expansion by 2014.

Toyota City based Toyota Motor Corporation (NYSE: TM) shares fell 1.41 percent to $73.18 Tuesday morning.

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