Last Friday Toyota announced that they may have to abandon NUMMI (New United Motor Manufacturing Inc.). A car plant in Northern California, NUMMI opened in 1984 and is jointly operated by GM and Toyota…or at least it was up until last Friday.

Toyota’s decision to make this announcement on Friday the 10th coincides with the “new” GM’s emergence from bankruptcy . While it’s a little complicated, here’s why that timing is relevant:

  1. As part of GM’s bankruptcy plan, a “new” GM was formed. The new GM got all the good, profitable assets.
  2. The “old” GM retains all the unprofitable assets.
  3. All the assets of the old GM will be liquidated over the next year or two.
  4. NUMMI is part of the old GM.

In other words, now that GM has officially abandoned NUMMI, Toyota is considering the same action…and who can blame them? A case can definitely be made:

  • NUMMI isn’t located near any significant supplier base.
  • NUMMI is an older plant with some outdated technology.
  • NUMMI is a UAW plant, which – to clarify – isn’t nearly as detrimental to labor costs as it used to be, but working with the UAW isn’t something Toyota is interested in.
  • Most importantly, Toyota has excess manufacturing capacity worldwide.

There are quite a few good reasons to shut down NUMMI, but we don’t think it’s going to happen (and we’re not alone). Here’s a list of reasons that NUMMI will survive:

  • Shutting down an American plant (let alone a UAW plant) is likley to be a public relations nightmare. Toyota is hypersensitive to any potential “pro-America anti-Japan” backlash, and isn’t particularly interested in finding out how a shutdown might be popularly perceived.
  • Toyota has a “no layoff” policy they are quite proud of. While it’s not 100% true, Toyota does their very best to never lay off a permanent worker. A shutdown would be a violation of this long-standing corporate policy.
  • A shutdown emboldens the UAW. As we noted a few weeks ago, the UAW has never been in a better position to unionize one of Toyota’s North American plants. Closing NUMMI might help the UAW convince workers at other Toyota plants to unionize.
  • Where will the Tacoma and Corolla go? Toyota sold about 144k Tacomas last year, and NUMMI made most of them (about 101k of them). Toyota sold about 351k Corollas last year, and NUMMI made most of those too (about 217k). Toyota has the capacity to build the Tacoma and Corolla elsewhere, but doing so would require a healthy investment – they would have to massively shuffle production in Indiana, Canada, Kentucky, and San Antonio to make it happen…which doesn’t sound like the lowest cost solution.
  • Toyota doesn’t know how to shutdown a big plant. It sounds crazy, but Toyota hasn’t closed many plants…ever. This would be a whole new move for them, and likely something they would want to ease into.

Finally, the word “Toyota” is Japanese for “really, really cautious.” [Ok it's not but it should be.] It’s hard to imagine Toyota making such a bold move. Most likely, this is posturing on Toyota’s part in an effort to secure some cost concessions from the UAW.

Our prediction: Closing NUMMI down in the middle of a recession right after GM and Chrysler file bankruptcy is politically dangerous. NUMMI can’t last forever, but Toyota will continue to produce vehicles at NUMMI for at least the next 3-5 years, with the clarification that production is “subject to futher review.” If Toyota can’t make NUMMI work, they’ll slowly shift production of the Tacoma and Corolla elsewhere during that time.

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