Toyota’s Trump Problem: Its Best-Selling Vehicle in the U.S. Isn’t ‘Made in America’

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TOKYO—

Toyota Motor
Corp.

TM -2.51%

mentioned Wednesday that its exports to the U.S. rose 22% in April, highlighting the issue it faces if the Trump administration makes good on threats to impose greater tariffs on imports.

The issue is crystallized in a single mannequin: the RAV4 sport-utility car. It’s the most well-liked Toyota amongst American customers—and none are made within the U.S. Greater than half are imported from Japan, whereas the remainder are made in Canada and imported tariff-free beneath the North American Free Commerce Settlement.

Earlier this month, the Trump administration mentioned it was contemplating a plan that will impose greater tariffs on automobiles and automotive elements, citing national-security issues, with attainable tariffs of as much as 25% on vehicle imports.

Toyota stands to lose essentially the most due to its dimension and publicity to the U.S. market.

In April, Toyota exported 66,000 automobiles from Japan to the U.S., a 22% improve over the identical month a 12 months earlier. A lot of them had been RAV4s, Toyota’s best-selling entry within the more and more well-liked class of crossover SUVs that mix the area of an SUV with gas effectivity rivaling sedans.

The elevated area comes at solely a small premium. The RAV4 begins at $24,500 within the U.S., in contrast with $23,500 for the Camry sedan.

Toyota has confronted stress from U.S. politicians for many years over its exports from Japan, and has responded by investing billions of in U.S. factories. So why isn’t it constructing its hottest car there?

Poor timing is partly accountable. The corporate is in the midst of a $10 billion U.S. funding plan that’s closely weighted towards boosting sedan manufacturing—together with a $1.three billion improve to its Kentucky manufacturing facility to provide the newest model of the Camry and an $800 million plan for a brand new manufacturing facility in Alabama that may produce round 150,000 Corollas a 12 months beginning in 2021.

Toyota made the plan when the U.S. market was cut up 50-50 between automobiles and vans, together with SUVs. As we speak, vans and SUVs make up nearer to two-thirds of the market.

The corporate does have a plan to make extra RAV4s near the American market subsequent 12 months. However that plan could possibly be problematic too, if Mr. Trump is severe about his threats.

Toyota is spending almost $1 billion to improve its vegetation in Canada to double RAV4 manufacturing to round 400,000 a 12 months. By the early 2020s, meaning the U.S. starvation for RAVs could possibly be met nearly fully inside North America—however provided that the Nafta deal permitting tariff-free imports from Canada survives the Trump administration.

“Our manufacturing technique has been based mostly on Nafta, and that’s how we have now deliberate the manufacturing construction, together with deciding which fashions to provide at which vegetation,” a Toyota spokesman mentioned.

Nafta is being renegotiated by the U.S. and the opposite two members, Canada and Mexico. Mr. Trump has mentioned he is able to finish the settlement if it isn’t revised to his satisfaction.

Toyota technically might produce not less than some RAV4s in Kentucky, because the Camry and RAV4 share a standard structure. It isn’t possible to try this, nonetheless, as a result of it will create waste, one thing that’s anathema to Toyota’s manufacturing engineers. Upgrading the Kentucky plant would lead to unneeded RAV4 capability as soon as the Canadian growth is completed.

“These guys, Toyota manufacturing system individuals, they’re essentially the most highly effective and influential individuals in Toyota. They’re specializing in slicing waste and rising effectivity,” mentioned

Takaki Nakanishi,

an auto analyst who runs Nakanishi Analysis Institute in Tokyo.

Toyota used to provide some RAV4s in Mississippi, however stopped doing that so it might centralize North American manufacturing of the car in Canada. That saves prices partly by simplifying the provider base.

Toyota has beforehand moved to appease Mr. Trump after dealing with criticism for investments outdoors the U.S. The corporate initially deliberate to construct a brand new Corolla manufacturing facility in Mexico, then switched to Alabama after Mr. Trump tweeted “NO WAY!” The Mexico manufacturing facility will make vans as a substitute.

The Toyota spokesman mentioned the corporate doesn’t plan to maneuver its truck and SUV manufacturing to the U.S. from Mexico and Canada, respectively.

Write to Sean McLain at sean.mclain@wsj.com



Supply hyperlink – https://www.wsj.com/articles/toyotas-trump-problem-its-best-selling-vehicle-in-the-u-s-isnt-made-in-america-1527678293?mod=pls_whats_news_us_business_f

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