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Toyota Boosts US Investment Plan by Almost 30%

March 14, 2019
The added spending raises the amount Toyota is investing in the U.S. to almost $13 billion over a five-year period ending in 2021.

Toyota Motor Corp., leery of Donald Trump’s threats to raise tariffs on cars and auto parts, is adding about $3 billion to a years-long U.S. investment plan announced just before the “America first” president took office.

The added spending raises the amount Toyota is investing in the U.S. to almost $13 billion over a five-year period ending in 2021. This includes a new $750 million outlay across several plants, the most noteworthy being for retooling a factory in Kentucky to build gas-electric versions of the top-selling RAV4 crossover and Lexus ES sedan.

“Today’s news really builds on our already expansive presence in the U.S.,” Jim Lentz, CEO of Toyota North America, told reporters on a conference call. “At a time when others are scaling back, we believe in the strength of America.”

Japan’s largest automaker has tried to work its way into Trump’s good graces after being a target of his tweets when he was still president-elect in January 2017. Days after drawing criticism for plans to build Corolla cars in Mexico, Toyota announced a $10 billion, five-year investment plan. In August of that year, it unveiled plans with Mazda Motor Corp. to jointly build a $1.6 billion factory in Alabama.

Lentz said the decision to further amp up the investment reflects Toyota’s credo to build cars where they’re sold, as well as increasing U.S. demand for its vehicles. But he also said a new North American trade deal and tariff threats also contributed to the moves.

“I’d be disingenuous if I said we didn’t have an eye on trade,” he said.

‘Fixing’ NAFTA

Trump congratulated Toyota by tweet about 80 minutes after the company’s announcement and linked the investment to the U.S.-Mexico-Canada Agreement, or USMCA, the still un-ratified deal intended to replace NAFTA.

While Lentz didn’t identify other companies that are scaling back in the U.S., Toyota’s announcement comes a week after General Motors Co. shut the first of four plants it’s closing in the country over the next year as it jettisons slow-selling sedans. Ford Motor Co. also is eliminating thousands of jobs in the midst of an $11 billion restructuring.

Tariff Risk

For all of Toyota’s efforts to appease Trump, it’s far from out of the woods. The president asked the Commerce Department last year to investigate whether imported cars and parts pose a national security threat, and has been mulling a potential increase in tariffs to as much as 25%. Toyota and other automakers have warned this would harm the economy by jacking up car prices -- even of U.S.-built models like the Camry sedan -- and undercutting sales.

The only hybrids Toyota makes now in the U.S. are gas-electric versions of its Camry and Avalon sedans and the Highlander sport utility vehicle. Building the RAV4 hybrid in Kentucky reduces trade risk for a key model that’s been entirely imported from Canada and Japan.

Toyota isn’t ruling out eventually producing a gasoline-only version of the RAV4 in Kentucky if demand for the vehicle continues to grow, Chris Reynolds, chief administrative officer for North America, told reporters. The company already produces the conventional Lexus ES in Kentucky.

Lentz said about 10% of ES and roughly 12% RAV4 sales in the U.S. last year were for the gas-electric versions. “We think there’s going to be increased demand, especially for hybrids,” he said.

By Chester Dawson

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