Toyota to Make More Camrys in Kentucky as Subaru Deal to End

May 09, 2014 4:18 pm ET

(Updates with closing ADR price in sixth paragraph.)

May 9 (Bloomberg) -- Toyota Motor Corp. will crank up production of the Camry sedan, the top-selling U.S. car the last dozen years, at its Kentucky plant after it stops farming out some manufacturing to Fuji Heavy Industries Ltd.

Toyota will move Camry production of about 100,000 units to Kentucky in the second half of 2016, it said today. The move will free up more capacity in Indiana for Tokyo-based Fuji Heavy, whose Subaru brand is on pace for a sixth consecutive annual sales record.

Making up for the lost Subaru capacity keeps Toyota in position to defend the model’s lead over Honda Motor Co.’s Accord, Nissan Motor Co.’s Altima and Ford Motor Co.’s Fusion. To fend off mounting competition, the world’s largest automaker is making styling changes midway through Camry’s typical five- year design cycle by introducing a restyled version with more contoured body panels and sportier handling.

“Every time I speak with Toyota people regarding Camry sales or Camry incentives, they always say ‘Camry is different; Camry is special,’” Kei Nihonyanagi, a Tokyo-based equity analyst for Bank of America Corp.’s Merrill Lynch, said by telephone. “Securing the No. 1 position in the U.S. is very important to Toyota.”

Camry’s U.S. deliveries have slipped 0.2 percent through the first four months of this year after rising 0.9 percent in 2013, when the car lost market share in the mid-size sedan segment to Accord, Altima and Fusion.

Toyota’s American depositary receipts rose 0.7 percent to $108.87 at the close in New York. They have fallen 11 percent this year.

Subaru SUVs

Squeezing 100,000 more Camrys into Toyota’s Georgetown, Kentucky, plant, already one of the largest auto-assembly sites in North America, requires planning and investment, said Jeff Liker, an engineering professor at the University of Michigan in Ann Arbor who studies Toyota’s manufacturing system.

“I’m pretty confident they’ll have to make an expansion at Georgetown to accommodate that move, but they’ve got some time to figure it out,” Liker said in an interview. “Toyota wants to load up its plants -- the higher the capacity utilization, the lower the fixed costs. This is a good problem to have.”

Georgetown built 504,213 cars last year, including about 349,000 Camrys, as well as Avalon sedans and Venza wagons. A $360 million expansion is already under way in Georgetown to add 50,000 units of Lexus ES sedan production in 2015, boosting the plant’s capacity to 550,000.

No Hiring Planned

For now there’s no plan to expand or hire more workers at Georgetown to handle the change, said Mike Goss, a spokesman for Toyota’s manufacturing unit.

“Initially, we’ll be able to build all the Camrys the market demands,” Goss said. Longer term, “we’ll look at our entire manufacturing footprint in North America,” he said, without elaborating.

Fuji Heavy, which counts Toyota as its largest shareholder, plans to enhance its product lineup with a focus on sport- utility vehicles. Chief Executive Officer Yasuyuki Yoshinaga said today the company will add a new SUV that will be exclusive to the North American market and may build the model at its Lafayette, Indiana, plant after the Camry contract concludes.

Even after Fuji Heavy’s production of Camry ends, the companies plan to continue work on clean energy technologies including plug-in hybrids and electric vehicles during the mid- term, Yoshinaga told reporters today. Fuji Heavy also produces the Subaru BRZ sports car, sold as the Toyota 86/Scion FR-S, which the companies jointly developed.

Rising Demand

The maker of Subaru Outback wagons and Forester SUVs separately today forecast net income will increase 4.1 percent to 215 billion yen ($2.1 billion) in the year ending March 31, missing the 239.3 billion yen average of 19 analyst estimates compiled by Bloomberg.

Rising demand for Subaru’s top-selling Forester and the XV Crosstrek SUV paced a 22 percent surge in deliveries this year through April. Sales for the Subaru brand has notched 29 consecutive months of year-over-year sales gains.

With its market share on the rise, Fuji Heavy plans to boost U.S. capacity by 29 percent to 400,000 vehicles by the end of 2020.

The company wants to raise annual sales to more than 1.1 million vehicles by March 2021, with North America as its “top- priority market,” according to a mid-term strategy plan released today.

--With assistance from Alan Ohnsman in Los Angeles.