Another Consequence of Lower(ed) Gas Prices - Toyota Halts U.S. Prius Project

SEE ALSO: Oil Producers Use Lower Gas Prices as Strategy to Prevent Alt Fuels From Succeeding

NASHVILLE December 15, 2008: According to Lindsay Chappell, writing for Automotive News, Toyota Motor Corp. is freezing its plan to build Prius hybrids in the United States as it battles a collapse in global profits by cutting spending.

Toyota’s board reached the decision late today, Japan time, to halt the $1.3 billion project near Tupelo, Miss., “due to the steep decline” in the United States. Toyota has no timetable on resuming construction, spokeswoman Barbara McDaniel said. The plant will build the Prius when the project resumes.

U.S. sales of the market-leading hybrid have softened as gasoline prices declined from their summer peak of more than $4 a gallon. In November, the Prius accounted for 8,660 U.S. sales, down from 16,737 a year earlier.

Total Toyota U.S. sales fell 32 percent in November.

The move reflects the increasing pressure on Toyota’s global profits. Last month, Toyota said it will do everything it can to meet a reduced operating profit forecast of about $6.6 billion for the fiscal year that ends March 31 -- less than half of its initial projection.

Options include halving the number of temporary workers it employs in Japan, delaying new factory launches and cutting r&d costs, Toyota said. Reducing salaries and bonus payments for directors also is on the table.

Toyota has more than a dozen factory projects in the pipeline, including plans to expand vehicle capacity by more than 55 percent in China in the next few years, and to build new car plants in India and Brazil. It also has a new joint venture factory for batteries due in early 2010 to power hybrid cars.

“It would be natural to expect a delay in new factories,’’ said Tairiku Sakaguchi, auto analyst at Japan’s Shinko Securities.

Speculation about the Mississippi plant’s future has circulated for weeks as Toyota and the rest of the U.S. auto industry slashed North American production. This is the second time Toyota has changed plans on the Mississippi project, which has begun to draw component suppliers to the area.

Toyota originally announced in February 2007 that it would spend $1.3 billion in Mississippi to produce a new generation of Highlander crossovers. After work began, SUV sales began to soften and demand for hybrids grew as gasoline prides soared. In July of this year, Toyota said it would instead build the Prius there.

Toyota said in a statement it will continue constructing the building, which is about 90 percent completed. But the company said it hadn’t yet ordered the equipment that will go into the plant.

The operation has already hired about 100 people for administrative and management positions. Toyota said: “Their jobs are secure.”

Reuters contributed to this report.