Toyota Motor Corp. (TM) is reportedly spending $500 million on retooling its southwestern Indiana plant (Princeton) for production of the Highlander sport utility vehicle. The total investment on this facility now rises to about $3.7 billion. The company, which is the largest automaker in the world in terms of sales and production, plans to begin production at the facility in October 2009 with 300,000 vehicles per annum.
According to the Associated Press, Toyota plans to spend $500 million entirely on acquiring new equipment at the Princeton facility. The company has no intention of spending on expansion or job creation at the facility. About 300 employees at the plant opted for voluntary retirement on payment of $20,000 and other incentives. The plant currently employs about 4,200 employees.
Last year, Toyota had announced major changes in its production mix on the back of changing consumer demand from large-size trucks to smaller vehicles. The production of Tundra full-size pick-up truck is planned to be shifted from the Princeton facility to the San Antonio plant in the second half of 2009.
Toyota is making aggressive expansions in China, the Middle East and other emerging markets. However, the company is suffering from a sluggish U.S. economy, rising costs, pricing pressures, and huge capital expenditures. Toyota’s losses in fiscal 2009 were higher than the guidance provided by the management.
The company has downgraded sales and production guidance for fiscal 2010 and expects significant operating losses in the year. These prompt us to rate the stock a Hold with a six-month target price of $75.00.
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