Details Behind The Closing Of NUMMI

Toyota Motor Corporation (Toyota City, Japan) announced last month that it will close its New United Motor Manufacturing Inc. (NUMMI; Fremont, CA) plant that was originally opened in 1984 as a joint venture by Toyota and General Motors Corp. (GM; Detriot, MI) and currently employs about 5,400 workers. The plant earlier confirmed it has received notice that Toyota will not order vehicles from NUMMI beyond March 2010.

Production of the Pontiac Vibe at NUMMI for GM ended in early September. NUMMI will continue to produce the Corolla and Tacoma models for Toyota until the end of March 2010, then expects approximately 4,600 jobs to be impacted after March.

Kunihiko "Kent" Ogura, president and CEO of NUMMI, stated, "NUMMI has enjoyed a very positive and mutually beneficial relationship with our suppliers, customers and community for the past 25 years, and we can all take great pride in the substantial achievements of this pioneering venture. We are deeply saddened that we will no longer have vehicle orders after March 2010. We particularly regret the impact that this will have on our valued NUMMI team members. The contract between the UAW and NUMMI emphasizes the philosophy of mutual trust and respect, and we are committed to making every effort to ensure the best possible transition for NUMMI team members. We will continue to work in close collaboration with our suppliers. We will also work closely with all appropriate stakeholders to identify ways to ease the transition for the local community."

NUMMI is an independent California corporation that was formed as the result of an historic alliance between GM and Toyota, who have been NUMMI's primary customers and shareholders since 1984. Over its 25-year history, NUMMI quality has been among the best in the industry, having received several J.D. Power and Associates Initial Quality Study vehicle and plant awards.

The San Francisco Bay area plant is the only large auto assembly plant on the West Coast. NUMMI produces about 400,000 vehicles a year, most of them Corolla compact cars and Tacoma pickups. Production of these vehicles will be shifted to other plants when NUMMI is shut down in March 2010. The NUMMI plant is the largest single employer in Fremont and has become a critical lifeline for tens of thousands of California workers in the East Bay area and Central Valley.

"The Friends of NUMMI" ? a group of families, workers, suppliers and local businesses that will be affected by the closure ? estimates a total impact of up to 50,000 jobs lost, after various secondary effects are taken into account. In a statement, the group noted, "The closure will lead to substantial losses in local and state revenues and employment taxes; it will increase property foreclosures which will lead to a drop in attendance in local schools due to affected families requiring relocation, and significantly increase the unemployment claims."

NUMMI currently pays the city of Fremont $1.9 million in property taxes alone. The closure of NUMMI represents an acceleration of a long-running trend of disappearing manufacturing jobs in what has been dubbed "the Silicon Valley" over the last decade. At the height of the dot.com bubble in 2000, the San Jose metropolitan area, which includes Fremont, had about 264,000 manufacturing jobs ? largely producing computers, hardware and printers.

By 2008, the number of manufacturing jobs was reduced to about 165,000. This drop was largely attributable to the bursting of the dot.com investment bubble, but it is now being compounded by the global economic crisis. As part of its bankruptcy proceedings in July, General Motors announced that it would abandon the joint venture with Toyota at NUMMI by dumping it into the "old GM" ? a collection of assets and obligations separated from the "new GM" in order to more efficiently mitigate losses for GM's wealthy investors.

Since then, Toyota's ultimate decision on the plant's survival has been anxiously awaited. However, concern about NUMMI's future has been constant since last year when the Obama administration made clear it would not support a bailout program for the auto industry, opting instead to use the financial crisis to extract concessions from auto workers and dismantle large sections of the industry. Toyota officials recently said that continuing production at the plant was not economically viable "over the mid- to long-term" without GM. Production will be shifted to lower-wage facilities.

While Toyota indicated that some NUMMI workers might be rehired, the company's executive vice president, Atushi Nimi, said that Toyota "will not be able to give priority to NUMMI workers." To date, there has been no mention of severance packages for workers and their families. Although Toyota has pointed to GM to explain its decision to close the plant, Toyota itself has been deeply affected by the economic crisis, which continues to produce record levels of unemployment and home foreclosures. Until now, Toyota has never closed a major plant.

While overtaking GM to become the world's biggest automaker, Toyota posted its first annual loss in 60 years ? 437 billion yen or $4.4 billion ? for the fiscal year ending March 2009, and Toyota managers have projected the net loss to worsen to 550 billion yen or $5.5 billion for the coming fiscal year. This is due to the fact that auto sales in the U.S. have fallen to the lowest levels since 1976, which has left Toyota scrambling to reassure its investors that it will use the economic crisis to cut costs by making deep attacks on the jobs and living conditions of its labor force.

Despite a relative rise in stock market prices and rosy proclamations of a budding economic recovery, Nikkei reported that Toyota will slash its global productive capacity by 10 percent, or 1 million vehicles, as early as this fiscal year. Toyota has about 2 million units of capacity in the U.S. and about 10 million units globally. The NUMMI closure will only reduce capacity by about 400,000 units, representing just a piece of the corporation's larger global plan. However, this may only be the beginning with Toyota's excess productive capacity estimated as high as 30 percent.

Yet, as auto sales have collapsed, Toyota shares have risen 39 percent this year. Its share price has actually outpaced an overall gain of 19 percent in the Nikkei 225 Stock Average. Toyota has 12 manufacturing facilities in the U.S: six of them are operating under capacity, and one plant in Mississippi has been idled. NUMMI was a logical first choice for closure because wages there are among the highest compared to other Toyota plants in Canada and Mexico.