Working Papers

Commitment is a Two-Way Street

Toyota, California and NUMMI

Executive Summary

California is in the midst of the worst jobs crisis since the Great Depression. State unemployment reached 12.4 percent in December 2009—fifth highest in the nation. Double-digit joblessness could last through 2012. More than one in five California workers was unemployed, underemployed or too discouraged to look for work last year.

Against this troubling economic backdrop, Toyota has announced plans to close its New United Motor Manufacturing, Incorporated (NUMMI) vehicle assembly plant at the end of March. Located in Fremont, CA, NUMMI was formed in 1984 as a joint venture with General Motors. The closure will idle 4,700 workers at the plant, the largest mass layoff in California since the Great Recession began in December 2007, and threaten a total of almost 25,000 jobs across the state.

The cost to the public of replacing these jobs would be staggering. Using estimates by the President’s Council of Economic Advisers it would cost taxpayers $2.3 billion to replace the almost 25,000 jobs that could disappear. Just creating 4,700 jobs—the number lost at NUMMI itself—would cost $433 million.

Most plant closings result from one or more of three factors: a slow-selling product, a company in financial trouble or a failing factory. None of these factors are present in this case. The Toyota Corolla, built at NUMMI, was the second bestselling car in the U.S. in 2009. Toyota is the wealthiest automaker in the world, having earned a record $65 billion between 2004 and 2008 alone.

NUMMI is a very competitive auto plant today. It has high productivity, award winning quality and competitive labor costs. It could be an even more competitive plant in the future, one that also produces hybrid and plug-in hybrid vehicles and anchors a new green network of advanced manufacturing, research and development, and related services throughout California.

The plant’s most important asset is a highly skilled and experienced workforce. Their average age is 45 and they’ve worked at NUMMI an average of 13.5 years. Their talent, skill and problem-solving ability are at the heart of the famed Toyota Production System. Those assets cannot be reproduced overnight.

The United States is Toyota’s largest market in the world. California accounted for almost 18 percent of Toyota’s U.S. sales and 5 percent of the automaker’s global sales in 2007. Toyota led California sales with a quarter of the market, more than the combined share of General Motors and Ford in 2009.

Toyota has benefitted considerably from federal and state programs. Most recently, the automaker ranked first in “Cash for Clunkers” sales in summer 2009, a stimulus effort that allocated $3 billion in incentives to trade in older models for newer, more fuel-efficient ones. The Corolla proved the most popular model. In a similar program in Japan, U.S.-based automakers were excluded initially.

The popular products made at NUMMI today—the Corolla and Tacoma compact pickup—will roll off assembly lines outside the state, most outside the country, if the plant closes. Meanwhile, as new workers are hired and trained around the globe, thousands of workers in California and their families—people who devoted their working lives to building the automaker—will be left in the cold in the worst job market in seven decades.

The shutdown will divorce Toyota’s growing success in California from the creation of new manufacturing jobs in the state. Toyota assembled domestically less than half the 1.8 million vehicles it sold in the U.S. in 2009 and, if NUMMI closes, that number could plummet to 44 percent in 2010 and 39 percent in 2011. In contrast, the automaker produced in Japan over 225 percent of the 2.2 million vehicles it sold in its home market in 2007.

Moving Corolla and some Tacoma production offshore would increase the U.S. auto trade deficit, which reached $121 billion in 2007, by an estimated $2 billion or more. New imports shipped from Japan also add to Toyota’s carbon footprint.

Toyota has argued that NUMMI is no longer viable because General Motors pulled out as a result of its bankruptcy in summer 2009. GM, however, has accounted for an average of only 15 percent of NUMMI’s production between 2001-2009.

This is the moment for political leaders in Washington and Sacramento to address the closure. The most immediate, direct, and cost effective jobs plan available is to keep NUMMI running. This stimulus plan delivers 25,000 jobs and could save $2.3 billion. The automaker and California would reap a triple bottom-line benefit: Toyota would restore its image and retain a world-class plant; workers and their families would make it through a dark economic winter; and California would get further down the road to economic growth and a green future.