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This (or a similar article) was already posted in another thread, but I figured it deserved its own.


Toyota to Make Prius in U.S., Hybrid's Biggest Market (Update2)

By Alan Ohnsman and Bill Koenig

July 10 (Bloomberg) -- Toyota Motor Corp. will build its Prius gasoline-electric car in the U.S., responding to a weak dollar and record fuel prices by producing the hybrid in its biggest market.

The Prius will be assembled in late 2010 at a plant under construction in Blue Springs, Mississippi, Toyota said today. The Highlander SUV scheduled to be made there will be transferred to Indiana, allowing Toyota to pack production of trucks that burn the most fuel into one factory, in Texas, instead of two.

Toyota is betting that gasoline prices will remain at historic highs and sustain demand for the Prius as competitors expand output of their own hybrids. The company is also responding to currency shifts that make exports to the U.S. more expensive, prompting President Katsuaki Watanabe's May forecast of a 27 percent drop in earnings this year.

``With the outlook gloomy for fuel prices, it's a smart move,'' said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. ``Toyota has come to the realization that this is not just a blip on the radar screen, but is a long-term trend.''

Prius Constraints

The U.S. accounts for 60 percent of Prius demand globally. Production constraints on the car, now built mainly in Japan, have left U.S. dealers with a five-day supply, spokeswoman Sona Iliffe-Moon said today. They have a 125-day supply of Tundra large pickups, about twice the level that analysts say is normal.

Toyota will consolidate production of Tundras at its San Antonio factory. The model currently is assembled there and in Princeton, Indiana. That plant will suspend work on the Tundra and Sequoia SUV starting Aug. 8 until November to make way for the Highlander, the company said in a statement.

American depositary receipts for the Toyota City, Japan- based automaker rose $1.12 to $92.60 at 4:15 p.m. in New York Stock Exchange composite trading. The ADRs are down 13 percent this year.

The new San Antonio plant builds the latest version of the Tundra, introduced last year as the first Toyota pickup big enough to compete directly with models from Detroit's automakers.

A 38 percent rise in gasoline prices in the last year to more than $4 a gallon led to a 24 percent drop in U.S. full-sized pickup sales through June after a 3 percent tumble in 2007. Tundra sales soared 58 percent last year and are down 7.6 percent this year, including a 53 percent plunge in June.

`They Bet Wrong'

``They bet wrong on the truck market,'' said Jeff Liker, a University of Michigan engineering professor and author of ``The Toyota Way.'' ``They've been really good about not screwing up like that in the past.''

Toyota's U.S. sales fell 6.8 percent in the first half, with trucks dropping 13 percent, pushing Japan's biggest automaker toward its first annual decline in U.S. sales since 1995.

Bob Carter, general manager for U.S. Toyota brand sales, has said since January the company will sell about 170,000 Priuses this year, down from 181,221 in 2007, because of tighter supplies. U.S. Prius sales last month dropped 34 percent from a year earlier and decreased 3.2 percent in the first half.

Ford, GM, Chrysler

Fuel prices have prompted production shifts at money-losing U.S. automakers General Motors Corp., Ford Motor Co. and Chrysler LLC. Each relies on trucks for a majority of U.S. sales.

Ford has cut output at truck plants while assigning overtime work at a Michigan plant that produces the Focus small car. GM is closing four North American truck factories and reviewing whether to divest its Hummer brand of SUVs. Chrysler plans to close a Missouri minivan plant and cut to one assembly shift for Dodge Ram pickups at another Missouri plant.

Earlier this year, Nissan Motor Co. said it would end production of Titan large pickups at its Mississippi plant and instead sell a new truck built under contract by Chrysler.

Toyota isn't disclosing costs related to the changes, said Mike Goss, a spokesman for the company's North American manufacturing unit in Erlanger, Kentucky.

No assembly equipment has been installed in the Mississippi plant, Goss said. Construction began last year, and the factory won't need major changes to accommodate Prius production. Toyota hasn't decided how many of the cars will be built in Mississippi, where it previously intended to make at least 120,000 Highlanders a year, Goss said.


Toyota also hasn't decided whether it will draw any of the hybrid's electronics, batteries and other components from local suppliers or bring all of them in from Japan as it now does for Camry hybrids made in Georgetown, Kentucky, Goss said.

The complexity of the Prius, which relies on specialty parts including motors, generators, inverters, transaxles and regenerative brakes not found on conventional cars, has made it difficult to readily expand production to meet demand this year.

``It takes a lot more component supply on batteries and other things that are very unique on that product,'' Jim Lentz, president of Toyota's U.S. sales arm, said on July 1.

A weak dollar may help reduce production costs for the Japanese automaker as the price of steel and other materials climbs. The yen has gained 4.4 percent on the U.S. dollar in the past 12 months and 9.9 percent since 2003.

Ford sells a gasoline-electric version of its Escape small SUV, and the company is bringing out a hybrid version of its Fusion sedan later this year.

GM has hybrid Chevrolet Tahoe and GMC Yukon models as well as hybrid versions of the Chevrolet Malibu and Saturn Aura sedan and Vue SUV. Hybrid GMC and Chevrolet pickups arrive later this year.

Gasoline-electric hybrids save fuel by using the electric motor only at start-up and lower speeds and rely on engine power and friction from braking to charge the battery.

Toyota and GM are racing to introduce plug-in hybrids able to recharge from household electrical sockets in 2010.

To contact the reporters on this story: Bill Koenig in Southfield, Michigan, at wkoenig@bloomberg.net; Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

Edited by PurdueGuy
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