Over the past decade, Toyota Motor Corp. has gobbled up market share by anticipating the appetites of United States car buyers better than its Detroit competitors did, rattling the beleaguered American industry and supplanting General Motors Corp. as the world's No. 1 automaker. Toyota has now realized, just as Detroit's Big Three figured out long ago, that rising materials and labor costs in the U.S. are cutting into profitability.

Today, Toyota's far-flung U.S. plants have created logistical tangles that have raised the cost of doing business.

As Jalopnik noted last week:

In Japan, Toyota has plants clustered together, with a capability of building more than a half-dozen different vehicles on each line, and their most efficient plants around the world are capable of operating more than one assembly line each. But here in the U.S., Toyota plants build just one or two models and are spread out all over the place. Why are they running so inefficiently stateside?

Well, The Wall Street Journal last week suggested an answer to that:

Top Toyota executives are concerned that the carmaker may have built too many U.S. factories, in part to build political support by providing new jobs in lots of places. And although Toyota's U.S. sales continue to grow, these executives worry about an uncertain outlook.

The WSJ quoted an unnamed Toyota senior executive and management board member who says, "It's much, much more profitable to produce cars in Japan and ship them all to the U.S. right now, if it wasn't for the political problems that might cause." The article noted that Toyota estimates its manufacturing labor costs will jump by $900 million by 2011.

For a variety of reasons, Toyota has pledged to produce in North America at least two-thirds of the vehicles it sells in the region. According to the WSJ, it appears the automaker from the land of the rising sun has been building the assembly plants in key geographic areas for maximizing political gains. "That makes sense given the Toyota Production System's fanatical focus on efficiency would argue having inefficient plants geographically spread all over the place is an anathema," Jalopnik pointed out. (See: Toyota's Battle of Perception and Backlash)

For Toyota, building factories in the U.S. has served as a way to win goodwill in the face of public rancor over the role played by foreign automakers in the decline of the American auto industry; twelve years ago, President Bill Clinton placed 100 percent tariffs on Japanese luxury cars as the U.S. and Japan battled over auto exports; and in the 1980s, Ford workers smashed Japanese cars with sledgehammers, blaming them for lost jobs. Since then, Toyota has won over not only consumers but also local politicians in part by building new U.S. plants and hiring American workers.

Today, Toyota operates vehicle, engine and parts factories in eight states. Toyota's most recent U.S. assembly plant is on the outskirts of Tupelo, a northeastern Mississippi town. The Tupelo plant, scheduled to start production in 2010, will be Toyota's eighth North American vehicle-assembly plant and the fourth new one it has authorized in the past five years. In Japan, most of Toyota's factories are all in a single place: Toyota City.

The WSJ has claimed Toyota is cutting plans on any further expansion once they get the already scaled back plant operational in Tupelo, Miss.

For one, a cheap yen is doing much better now against the U.S. dollar, making it advantageous for Toyota to increase manufacturing capacity and export vehicles from Japan. Toyota has increased shipments to the U.S. of Japanese-made vehicles from 762,000 in 2004 to 1.27 million last year. That includes vehicles such as the Yaris, which Toyota had apparently looked at assembling in Mexico — instead, the automaker's now thinking of continuing to make the little car in Japan and shipping it here.

Yet Toyota being Toyota, the automaker already has a manufacturing strategy that it hopes will help curb some of the costs. For instance, according to the WSJ article, "Toyota has developed a shorter assembly line that can churn out a dozen different cars nearly simultaneously, on the same line — one every 50 seconds, one of the fastest production speeds in the world."

Toyota isn't likely to see its North American sales growth slow to only 1.6 percent this year, as the automaker itself has predicted, say analysts quoted by Bloomberg News. Rather, the Japanese automaker could grow five times that fast. Sales probably will slow from the 15 percent experienced last year, but still set a healthy pace on the continent, the analysts say.

Toyota has exceeded its own North American sales outlook each year for at least the past four years.

Last Friday's promotion of Jim Press, head of North American operations and a 37-year veteran at the company, won shareholder approval, making him the first non-Japanese member of Toyota's board of directors.

Press rejected recent speculation that Toyota may lower the pay of its American assembly line workers. He called a recently leaked memo about the need to cut labor costs "a conversation piece," adding that boosting efficiency is a more effective way to reduce costs.

Earlier: Toyota's Battle of Perception and Backlash

Resources

The Wall Street Journal

Jalopnik

Car and Driver

The New York Times

Bloomberg News

Zee News

The Associated Press