GM and Toyota Comit to Continue NUMMI Joint Venture

SAN FRANCISCO February 13, 2004; Norihiko Shirouzu writing for the Wall Street Journal reported that General Motors Corp. and Toyota Motor Corp. vowed to continue to cooperate and operate a small-vehicle manufacturing venture in California to share ideas in manufacturing and other aspects of the business.

But as the world's two-biggest auto makers Thursday celebrated the 20th anniversary of the venture, New United Motor Manufacturing Inc., in Fremont, Calif., reasons for its existence were becoming less clear.

Both companies have more or less fulfilled their initial objectives in forming the joint venture, with GM absorbing the secrets of Toyota's lean manufacturing to improve vehicle quality at its own plants in North America and Toyota learning from GM the ins and outs of running manufacturing facilities on U.S. soil.

The venture's president and chief executive, Yuki Azuma, also said the plant was fighting to quell one of the worst spells of quality problems in its history over the past two years, particularly with the Pontiac Vibe, a small hatchback derived from Toyota's Corolla car. The plant began producing the redesigned Corolla for Toyota and the Vibe for GM to sell in the U.S. in 2002. The venture shipped 74,223 Vibes to GM last year.

"We have been trying to improve quality [of the Vibe], but efforts have fallen short of meeting GM's expectations," said Mr. Azuma, a Toyota executive.

At one point during the second quarter of 2002 after launching the Vibe, the venture had to park nearly 1,000 cars inside the plant and in parking lots outside for a few days while its workers tried to fix assembly mistakes.

Mr. Azuma declined to be more specific about what stalled production at the plant then, but noted the car has had fit-and-finish problems involving the vehicle's body panels, which he said have often become a source of customer complaints about noise.

Indeed, a person familiar with the venture's operations recently said the Vibe was one of the worst-quality vehicles on its Pontiac product lineup -- a cause of concern at GM, according to that individual.

The venture, which produced 395,000 vehicles last year, makes the Toyota Tacoma, a compact pickup truck, in addition to the Corolla and the Vibe.

Profits Have Been Erratic

Mr. Azuma, who last year replaced Kanji Ishii of Toyota as the plant's top manager, said the venture has been fairly erratic in its ability to make money, having lost money on average once every three years in large part because of a costly changeover of manufacturing tools to launch a new or redesigned model. He also attributed the plant's inability to make money more consistently to high costs of doing business in California that stem from steeper labor rates, energy expenses and taxes, among other factors.

Still, Mr. Azuma said vehicle quality has improved vastly since early 2002 as a result of joint efforts by GM and Toyota to remedy the problem. The improved quality, coupled with efficiency gains the plant has made in the recent past, should allow the venture to make money more consistently and pay dividends for the first time ever to GM and Toyota in three to four years, he noted. The venture reported operating profits in 2003, said Mr. Azuma, without elaborating further.

When GM and Toyota began the venture 20 years ago, the world's biggest auto maker sought to learn from "a real-time example" of Toyota's efficient lean- manufacturing system, while Toyota through the effort looked to see whether its Japan-bred manufacturing methods could be transplanted in the U.S.

Today, GM claims it has improved its manufacturing process so much so that it is ready to share some of its own "best practices" in car-building with Toyota, GM's chairman and chief executive, Rick Wagoner, told a press conference Thursday.

Toyota, meanwhile, has become a major automotive-manufacturing force in North America over the past two decades, operating four assembly plants in North America in addition to the joint venture. Its sixth plant is due to commence production of a full-size pickup truck in San Antonio in 2006.

Committed To The Partnership

Some observers say Toyota and GM are growing out of the venture, but both auto makers stressed repeatedly Thursday that they are committed to keep their partnership.

The effort has "established ambitious goals including best-in-class quality and productivity performance," said Mr. Wagoner. "We applaud those lofty goals, and will continue to support their achievement by sharing GM's best practices in quality and productivity, and by continuing to commit our technology and management resources to NUMMI."

Toyota President Fujio Cho echoed Mr. Wagoner, saying, "Today, 20 years later, I am more confident than ever about the bright future for (NUMMI). And at Toyota, we believe stronger than ever in the importance of partnerships."

Mr. Wagoner said one key reason why the auto maker is interested in continuing its relationship with Toyota is because of a vehicle like the Pontiac Vibe, a Toyota-designed car, that GM has been able to buy from the plant without making a costly investment in developing a vehicle on its own. The Vibe is one of Pontiac's best-selling models.

Mr. Azuma said the venture was worthwhile even after 20 years because manufacturing technology evolves constantly and NUMMI allows both companies to help hone their production processes through sharing ideas and working on the same assembly line together. He said the venture also continues to allow Toyota to learn from GM in how to deal and work with unionized American workers.