Toyota Executive Says New US Powertrain Plants Will Open to Meet USMCA ROO

Toyota does support the renegotiated NAFTA, a top executive said at a trade conference in Washington, even though it will require the company to change some of its sourcing to meet the new 75 percent autos rule of origin. Doug Murtha, vice president of corporate strategy and planning for Toyota's North American division, said that the addition of $3 billion in U.S investments were, "to some extent, changes we had to make for USMCA."

The 30 percent of vehicles that Toyota sells in the U.S. that are imported are mostly low-volume models, such as the hatchback model of the Corolla, Murtha said at the April 11 Peterson Institute for International Economics conference. Toyota does build its high-selling Tacoma pickup truck in both the U.S. and Mexico, however.

Murtha said that while some models may shift between Canadian and U.S. plants after the agreement is ratified, there will be no model coming to North America that isn't already produced there. "It's really more powertrain investments and major components," he said. Powertrains include engines and transmissions. Other core parts identified in the revised rule of origin are suspension, steering and advanced batteries in electric or hybrid vehicles.

Toyota has three domestic engine plants, in West Virginia, Alabama and Kentucky. He said the new powertrain and engine production will replace imports from Asia. However, he said some of the plans are "back-burnered" until it's clear the new NAFTA will be ratified.

But even as Murtha's comments suggest that the Office of the U.S. Trade Representative's strategy to increase U.S. auto manufacturing employment is working, he also said that corporate headquarters is less likely to expand production in the U.S. when it could do so in Thailand, France or South Africa without paying the 15 percent to 30 percent premium for steel now in the American market because of Section 232 tariffs. Murtha said that so far those tariffs haven't meant the U.S. has lost any of its production destined for export, but Toyota is very concerned that auto tariffs are coming. He said that the additional cost for U.S. steel and Canadian aluminum adds about $600 to the cost of a car, and that is getting passed along to consumers.

Murtha said that if tariffs are imposed on imported autos, he expects some Lexus and Supra buyers will continue to buy imports at a 25 percent premium, but some of those buyers will be priced out and move to more mass-market brands. In the case of imported cars with lower price tags -- think of the Yaris, made in France, or the Corolla hatchback version made in Japan -- those simply won't be imported if tariffs are put into place. "We're certainly going to turn off the tap, take models out of the market," he said.

Murtha said other policy problems weighing on Toyota North America are the shift in gears on Corporate Average Fuel Economy, better known as CAFE, fuel economy standards -- the Trump administration's decision to rescind tougher standards means there are now two standards, California and national. And, in trade, Toyota is concerned that new export controls on developing technology may be "excessively vague or excessively broad," and if that happens, it could endanger its 1,300-person Ann Arbor, Michigan, research site. In contrast, Section 301 is not a problem, because Toyota sources nearly all of its parts within North America.