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Toyota Revamps Its Biggest Car Plant for Hybrid SUVs

Toyota Revamps Its Biggest Car Plant for Hybrid SUVs

(Bloomberg Businessweek) -- Toyota Motor Corp.’s largest plant in the world sits on 1,300 acres surrounded by rolling fields of bluegrass in rural Kentucky. With floor space equal to about 170 football fields, the Georgetown factory houses more than 2,000 industrial robots, 6 cafeterias, 2 paint shops, and an indoor basketball court. Walking down crowded aisles between parts bins and half-assembled cars, plant manager Susan Elkington scans the facility, obsessed with finding more open space. “I talk a lot about space,” she says. “If you want something new, you need space first.” Say for room to build a RAV4 sport utility vehicle, which isn’t presently built in Georgetown but Elkington expects will be starting in January.

The 48-year-old engineer was tapped to run the factory last year, and her first order of business has been to add the gas-electric hybrid version of the popular SUV to one of the plant’s three assembly lines. Retrofitting a Camry sedan assembly line for the RAV4 is part of a company mandate to update Toyota’s oldest North American plant with newer technology, more efficient processes, and fresher products. “We want to continue to be competitive, and sometimes it’s very hard to compete against newer plants,” Elkington says.

Toyota Revamps Its Biggest Car Plant for Hybrid SUVs

Georgetown is fighting to hold on to its status as Toyota’s biggest plant globally as demand for its sedans has plummeted and the three-decade-old factory deals with high fixed costs, falling productivity, and the rise of a network of sibling plants in North America churning out more popular crossovers, SUVs, and trucks.

When the factory opened in 1988—the first wholly owned Toyota plant in the U.S.—it was designed to assemble hundreds of thousands of mass-market vehicles, such as the midsize Camry. For 27 years that was Toyota’s bestselling car in America. The Georgetown plant’s output peaked at 514,590 vehicles in 2007, just before the Great Recession. Americans’ appetite for sedans didn’t keep pace with a recovery in auto demand over the past decade.

Toyota Revamps Its Biggest Car Plant for Hybrid SUVs

Toyota boosted annual capacity at its Kentucky facility to 550,000 vehicles with the addition of a third assembly line in 2015 for a Lexus luxury sedan that shares parts with the Camry. But it’s only cleared the half-million production mark once since then—it made 500,766 vehicles in 2016. In 2018, Georgetown’s production totaled 430,224 cars, a sign of rapidly changing auto tastes. Now, says Jim Jordan, an engineering manager in charge of the plant’s RAV4 project, the focus is on bringing the plant up to capacity. “That’s a point of pride for us,” he says.

That’s meant investing $238 million in Kentucky to add the RAV4 hybrid as well as a hybrid version of the Lexus ES sedan, bringing Toyota’s total investment in the plant to $7 billion since it was first announced in 1985.

Bragging rights also are harder to come by than in years past, when Georgetown had fewer rivals inside and outside the company and it racked up a string of quality awards. The factory took top place for fewest defects in a J.D. Power ranking in 2016 for its new Lexus assembly line. But it earned the highest award only twice over the past 10 years, compared with four times in its first decade producing the Camry. The J.D. Power citations, based on consumer feedback on new-car purchases, is an important barometer of plant efficiency in the industry and of vehicle quality, which can affect demand and pricing. “In the past it would win fairly frequently, but today it’s much tougher,” says Dave Sargent, vice president of J.D. Power’s global automotive practice.

Toyota Revamps Its Biggest Car Plant for Hybrid SUVs

Georgetown’s ebbing fortunes have increased pressure to cut costs and boost efficiency. In 2017, Elkington’s predecessor, Wil James, warned employees that the plant faced an uncertain future if it didn’t do more to reduce costs. He said it was less expensive to build a Camry in Japan and ship it to Kentucky than it was to manufacture one locally. “I’m not sharing this to scare you but to heighten your awareness of the current risk we now have,” James said, urging workers to make as much progress on cost reduction and efficiency as they had in safety and quality.

His message was clear: If the plant doesn’t stay competitive with peers, it could put jobs at risk in Georgetown.

That resonated deeply with the 8,000 full-time workers, none of whom have ever been laid off—even when Toyota completely stopped production for several weeks during the worst of the recession. But the plant’s 1,600 temporary workers don’t have the same job security and benefits, and critics say Toyota has used these lower-paid employees as a buffer and allege it has underpaid some of them for years.

Toyota has denied the claims and says it always complies with legal requirements. But it agreed to settle a class-action suit filed last year by temporary workers against Toyota Motor Manufacturing Kentucky for alleged pay violations over a six-year period starting in 2013, according to public filings. Terms of the deal, which a federal court preliminarily approved in August, are confidential. “We elected to make an early resolution and end the costly litigation,” a plant spokesman said in a statement. “Toyota values its team members and offers fair pay and benefits in accordance with the law.”

Elkington was made plant chief after a three-year assignment at headquarters in Toyota City, Japan, during which she oversaw global manufacturing operations and toured more than 200 Toyota facilities in every region outside the U.S. The Georgetown posting is the result of an effort by the company to nurture future leaders who are well-versed in Toyota production and empowered to run their plants more autonomously. Overseas plants are no longer required to use blueprints from Toyota City and are adopting smart-data-led production practices sometimes more advanced than those in Japanese plants.

“Headquarters doesn’t interfere in the day to day unless they need to,” says Steve St. Angelo, a former Georgetown plant head who recently retired after heading Toyota’s Latin America operations. “Local plants are more on their own now.”

Toyota Revamps Its Biggest Car Plant for Hybrid SUVs

Kentucky is installing advanced flaw-detecting cameras, self-driving supply carts, and systems for sequencing component delivery so fewer parts need to be stored on the factory floor. That will require fewer workers doing manual tasks and will boost efficiency in line with newer factories that integrate parts production on-site. Toyota also is reconfiguring equipment to match its most flexible factories in Japan, which make a half-dozen different models on the same assembly line. “One of the big things that is changing is the plant layout,” says Elkington, who’s creating space by eliminating a large meeting area and moving training rooms to an administrative area of the plant.

A gasoline-powered RAV4 in addition to the newly arrived hybrid might also be in Georgetown’s future as one of several possible new models, she says, something which could lift output closer to the plant’s capacity.

Raising annual production above half a million vehicles looms large as a make-or-break goal for the plant head. “I think we can,” Elkington says. “When we’ll get back there, I’m not sure.”

To contact the editor responsible for this story: Dimitra Kessenides at dkessenides1@bloomberg.net

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