Toyota Engine Plant Serves Growing ASEAN Demand And Tackles Currency Risk

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Japan's Toyota Motor has announced a AUD300mn injection for its plant in Altona, which will not only help safeguard 3,000 local jobs, but also enable Toyota Australia to export engines to markets in the Association of South East Asian Nations (ASEAN) where vehicle demand is growing rapidly. A AUD63mn grant from the federal government's Green Car Innovation Fund has contributed to the project, as the plant will produce up to 100,000 hybrid engines per year from H212.

The investment is a significant boost for the industry, which saw total vehicle production fall for the second consecutive year in 2009, when output was down 32%. Toyota is one of only three carmakers still producing in Australia since the departure of Mitsubishi Motors last year. Domestic demand has also waned since 2008. However, while BMI expects both sales and production in Australia to rise this year by 12% and 6.5% respectively, exports to the ASEAN region, where BMI forecast total vehicle sales to rise from 1.97mn units in 2009 to 2.5mn units by 2014, should provide even greater opportunity for growth.

In addition to the hybrid engine, Toyota Australia will also produce a next generation four-cylinder engine. Output from the plant will be shipped to countries where Toyota produces the Camry and Camry hybrid and will enable the company to improve its efficiency and costs. While Victorian Premier John Brumby said that without the investment the Altona plant 'would have seen a measurable and gradual decline' as the engines would have to be imported from Japan, this would have also been bad news for the other units in the region. The current strength of the yen makes importing components from Japan increasingly expensive and for multiple units this would have a severe impact on Toyota's regional performance.

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Toyota has also partnered with government departments to devise the C21 Challenge project, part of the Victorian Automotive Manufacturing Action Plan, which aims to support Tier 2 and 3 suppliers in taking up new technologies. This is likely to prove vital in Toyota's plans to source around half of the components for the Hybrid Synergy Drive for its Camry Hybrid. According to Toyota Australia CEO Max Yasuda, replacing imported components is a high priority for the company in order to avoid the effects of currency fluctuations. At present, the whole hybrid system, plus engine, is imported, but Yasuda says 50% local content is 'a good number' to achieve.

This is the second time the government's green incentives have secured work for the Altona plant. A AUD35mn green car grant from the government won over the Japanese firm, after it had originally planned to produce all of its Camry Hybrids for the region in Thailand.

Table: Australia -- Vehicle Production
Month 2006 2007 2008 2009 % change, y-o-y
January 14,044 18,658 21,152 11,937 -43.56
February 28,276 29,370 32,303 20,404 -36.84
March 30,802 29,419 26,393 21,310 -19.26
April 25,870 22,687 28,721 12,792 -55.46
May 33,630 33,258 35,180 16,842 -52.13
June 23,568 29,061 29,884 18,674 -37.51
July 22,643 31,799 33,121 17,864 -46.06
August 34,224 27,753 29,397 16,988 -42.21
September 28,944 28,573 28,511 20,924 -26.61
October 33,020 33,324 24,119 23,551 -2.35
November 31,536 29,801 20,659 22,622 9.50
December 20,403 14,281 14,678 19,442 32.45
Total 326,960 327,984 324,118 181,286 -37.22
Source: Federal Chamber of Automotive Industries

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