Out of Control Policy Blog

Predicting the future is tough even for the gazelles

The Big Three automakers have had a tough year. Not only were they thrashed on the presidential campaign trail by both candidates for making "bad decisions," but they found themselves humuliated before Congress as they sought a bailout from the federal government. It's easy to forget that the market is a lot more fickle than armchair pundits (or politicians think).

While the Big Three can be faulted in hind sight, its worth reminding ourselves that Toyota, arguably the world's most forward thinking, efficient and savvy large auto maker made some of the same forecast errors the Big Three did. This point is made abundantly clear by two articles in the New York Times. The first reports on Toyota's first annual loss in seven decades of operation. The second article chronicles the struggles of foreign automakers in the global meltdown.

The tale of the Tundra and the San Antonio plant is part of a larger story of unprecedented juggling for Toyota, the biggest foreign car producer in the United States by far and a company long known for its skill in planning and execution. Until recently, the company had been struggling to keep up with demand in North America.

But only a year and a half after the plant opened in late 2006, gas prices soared to such heights that the pickup truck market crashed. As inventories of Tundras ballooned this summer, Toyota suspended production at the plant for three months. Now Tundras have begun rolling off the assembly line again, but with the economy reeling, even low gas prices have not revived sales.

The Tundra was originally meant to be made here and at a plant in Indiana. But as the truck market collapsed, Toyota decided to consolidate all its Tundra production in San Antonio and produce the Highlander S.U.V. at the Indiana plant.

Toyota further changed course with a plant under construction outside Tupelo, Miss., that was supposed to build Highlanders, deciding to produce the Prius hybrid there instead. But last week, with sales of even the Prius falling in the face of the economic downturn, Toyota decided to delay completion of the Mississippi plant indefinitely.

"It tells you how drastic the change is in the economy and the auto industry," said Kirk Kohler, the San Antonio plant's general manager for administration and production control. "Even Toyota, which typically is very conservative and deliberative and makes decisions for the long term, even we did not see the change that was coming in the market."

Samuel Staley is Research Fellow


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