GM pulls out from Toyota joint venture

By Thomas Lifson

General Motors has announced that it will quit its joint venture auto manufacturing plant, operated with Toyota, leaving the unionized facility's future in Toyota's hands. Toyota already sells 80% of the products built there, but the workforce is organized by the UAW, so if Toyota were to keep the facility open under its own management, it would find itself sitting across the bargaining table from the very union that seeks to organize its other plants in North America.

New United Motor Manufacturing Company (NUMMI - pronounced "new me") is the sole remaining automobile manufacturing facility on the West Coast, and its closure would idle almost 5000 assembly workers, plus an estimated 35,000 related jobs in support functions. Roughly a decade ago, a spokesman for the Port of Oakland told me that 10% of the port's cargo was related to NUMMI, which imports many components from Japan and sources globally for materials such as steel, so the 35,000 figure may be quite realistic. California already has the nation's highest unemployment rate.

NUMMI was created in 1984, with GM contributing its poorly-performing Fremont, California assembly plant, and Toyota taking over management, and retooling to build vehicles based on its own deigns. Fremont-built cares were sold by both Toyota dealers, and GM dealers (who used the "Geo" brand name for NUMMI-built vehicles).

In short order, NUMMI-built vehicles attained a reputation for high quality. Toyota management outshone GM management in mnaufcaturing. But as a separate company, NUMMI spared Toyota the experiences of dealing directly with the UAW.

GM executives were chagrinned to discover that nearly identical vehicles carrying the Toyota Corolla brand sold for a few hundred dollars more than the same vehicle badged as a Geo Prizm. This was stark evidence that the GM brand name had fallen well below that of Toyota in consumers' estimation.

Toyota's American sales have fallen drastically since the last quarter of 2008, and the company has more manufacturing capacity worldwide than demand. However, the cost of assembling vehicles in the United States is reportedly lower than in Japan. On purely economic grounds, there may be a case for keeping the Fremont facility open as a Toyota-only plant, and closing down manufacturing capacity elsewhere.

However, I cannot imagine that Toyota relishes dealing directly with the UAW. Toyota's Georgetown, KY and Princeton, IN assembly plants are nonunion. Having watched the UAW's malign effect on its once-might American competitors, will Toyota be willing to let the camel's nose under the tent in California?

The UAW already has a track record as a job-killer. Fremont may be the next chapter in that sorry story.

Full disclosure: for a number of years I served as a consultant to Toyota. All information in this entry is based on public sources, and I have spoken to no Toyota representatives in preparing it.