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Art Smalley

Art Smalley: Ohira Plant and Investment

By Art Smalley, - Last updated: Saturday, March 19, 2011 - Save & Share - Leave a comment

There are several parts to this question and I will probably break up my thoughts into two different posts on the topic of capital investment. The question asked pertains to a new plant in Ohira Japan located north of Sendai that is associated with Toyota Motor Corporation. This plant in actuality is owned by a Toyota affiliated company known as Central Jidosha in Japanese or Central Motors in English. Toyota has a financial interest in the company but technically it is not owned or operated by Toyota Motor Corporation (TMC). Still as the opening ceremony for the plant was attended by several Toyota executives you can see it does of course have a tight relationship with TMC. And of course the plant is producing the Toyota Yaris for shipment overseas. (Some details are here on the plant in this article).

This plant has gathered some attention for different reasons. It is the first Toyota affiliated vehicle plant to open in Japan in about eighteen years. Growth and investment since that time have been mainly overseas. The Ohira plant is also attracting attention due to a different final assembly line configuration. At least in sections the cars travel side to side rather than nose to tail style in order to save space. Also the overall line shaped is somewhat U-shaped in nature (do not assume that it is a U-shaped cell or collection of these cells however). Automation was limited in the plant to the bare minimum necessary and kept flexible as possible. Some observers are commenting that this facility perhaps is a model plant for how Toyota will attempt to build low cost facilities overseas in the future (click here for that article).

To be clear I have not visited this facility and I don’t personally know anyone who works there either. It seems that facts about the cost of the facility are hard to come by. Some comments in the press are suggesting as the question posed here that the plant costs 40% less than a traditional facility. In the Ward’s article that plant was reported to cost about $573 million dollars. However that number is not for certain and it may be somewhat less. Unless we know the exact amount of investment for the plant and the associated production volumes it is tough to give any sort of detailed or satisfactory answer on this topic. The plant is currently producing 250 cars per day with 900 employees on site. At full production it is expected to produce 120,000 units per year and employ 1,900 per employees.

Those numbers if correct don’t necessarily stand out to me as being game changing numbers. A full size plant can easily top one billion dollars in investment but on the other hand it also produces normally around 240,000 units per year for Toyota. With overtime and a few weekends, etc. 300,000 units per year is possible. So frankly I don’t yet understand where the reported 40% improvement figures comes from. It is possible that the plant was built for much less that noted above or it is possible that it is being compared to more complex and expensive facility in the Toyota network.

In order to properly answer the question I’d have to obtain some more specific figures (that are not publicly available) for investment cost as well as the different types of capital equipment in the facility. For example what type of equipment is in the stamping, body weld, paint, plastics, and final assembly departments, etc. and how is it being used. In due time these types of numbers and facts do tend to leak out but right now they are not known so the “40% lower” figure to me is a bit perplexing. Since I can’t execute good Toyota practice by going to the genba and getting all the facts I am going to have to pass on the specifics of this Central Motor Ohira site and the related question. Instead in a follow up post I will provide some insight on what I observed over the years about capital investment inside of Toyota Motor Corporation.

One last observation on this post however is that using affiliated companies to produce lower volume vehicles such as this one is part of Toyota’s investment strategy. It does not make economic to sense for the higher cost parent company to produce every vehicle for the corporation. Often there are niche products or items that make sense for the product portfolio of the company that just don’t justify a full sized facility on their own. Toyota Auto Works, Kanto Auto Works, Toyota Shatai, Central Motors, Arako, and other affiliated companies all currently produce or have in the past made vehicles that were sold under the Toyota name plate. In this way Toyota uses lower cost affiliated companies to produce lower volume product for the company flagship. This Ohira plant located north of Sendai for Central Motors producing the Yaris falls into that category as a further example.

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