Toyota says Tupelo's steep price is the new reality
Lindsay Chappell | Automotive News / March 12, 2007 - 2:00 pm
Is Toyota Motor Corp. spending too much to build its next American auto plant? The Japanese automaker with the reputation for cost efficiency says no.
On Feb. 27, Toyota said it will spend $1.3 billion to construct the new factory near Tupelo, Miss. The plant will yield 150,000 Highlander SUVs annually when it is up and running.
But the price tag is far higher than some other recent auto plant projects.
Just 10 months ago, Honda Motor Co. broke ground on an assembly plant in Greensburg, Ind., that will produce 200,000 cars a year. Honda's price tag: $550 million, less than half the expected cost of Toyota's Tupelo plant.
Five years ago, competitor Nissan North America Inc. began constructing a factory of its own in Mississippi for $1.4 billion. But that completed plant is capable of producing 400,000 vehicles a year, nearly three times as many as Toyota's project.
Toyota officials say they are at the mercy of rising prices for steel, concrete and other building materials.
"A lot of it stems from material costs," said Ray Tanguay, president of Toyota Motor Manufacturing Canada Inc., who is directing a North American competitive-assessment study for Toyota. "Steel costs have gone up phenomenally."
According to the American Metal Market information service, the indexed price of a ton of steel is $275 this month, about 12 percent higher than one year ago. The average price fluctuates from month to month but has generally been about twice what it was in 2003.
Toyota also blamed rising material prices for much of the cost overruns at its newest factory in San Antonio, which it opened last November. The project, pegged to cost $850 million, ended up costing $1.28 billion.
That plant will yield 200,000 Tundra pickups a year.
Part of the company's surprise in San Antonio was the unforeseen economic impact of Hurricane Katrina, which hit the Gulf region in the middle of the project. Katrina swamped the normal supply-and-demand balance for contractors around the South, driving up competition for building materials and contractor labor.
Now two years after Katrina, Tanguay said, auto plant construction has not gotten any cheaper.