LOS ANGELES -- Expect still another Toyota assembly plant in North America.

Toyota Motor Corp.'s North American planning group is evaluating the company's North American sales plan for 2010 and beyond. The group's early conclusion: More manufacturing capacity will be needed beyond the five assembly plants operating and two under construction.

"We have been consistent, conservative and steady. But it does make sense" to add capacity beyond what the company has already announced, says Steve Sturm, vice president of North America planning for Toyota Motor Sales U.S.A. Inc.

Among possibilities being explored is a plant in Mexico to produce the Yaris budget car, Sturm says. The Yaris replaced the Echo this year at the bottom of the Toyota brand's lineup in America. It also is sold in Canada and Mexico.

Toyota is betting on more than its own momentum for sales gains. The arrival of 64 million Generation Y'ers means the size of the U.S. vehicle market should explode by 2010, Sturm says.

"These kids are getting new cars, not used cars," he says of the group born from 1977 to 1994. "More cars are being added to the family fleet. The immigrant population is growing and buying cars."

More engines, too

Sturm declined to offer details about Toyota's production targets. In 2005, the company produced 1.56 million units in North America, 63 percent of its North American sales. Its goal is to produce in each region at least 60 percent of its sales. (See story at right.)

Plans suggested by the North American planning group must be approved by Toyota headquarters in Japan, he says.

Sturm says the planning group is exploring a broad expansion of powertrain production. "Our engine and drivetrain manufacturing needs to grow in proportion with new assembly plants," Sturm says.

Over the past decade, Toyota's North American sales have grown by an average of 8 percent annually. If things continue at that rate, Toyota's sales growth will outpace its local production growth.

Toyota will gain volume from its existing products becoming more popular and from new vehicles.

Consulting firm CSM Automotive forecasts Toyota will manufacture close to 2.1 million units in North America in 2010. Plants already under construction or previously announced will handle most of this increase.

Mike Jackson, director of North America vehicle forecasts for CSM, said Toyota might expand some existing factories, such as plants in San Antonio and Baja California, Mexico.

Yaris plant?

If Toyota were to build another Mexican assembly plant, it likely would produce the Yaris subcompact and other new vehicles from the same platform for all North American markets. Toyota now builds the Yaris for America in Japan.

Mexico got its previous-generation Yaris from France, which made it prohibitively expensive, Sturm says. Starting with the new-generation Yaris this year, Mexico is getting the car from Japan.

Toyota probably won't build Scions in Mexico even though some Scions might share underpinnings with the Yaris, Sturm says.

"We need to be close to the (Japanese) nest for Scion, to be near the engineering resources to make the quick changes and retooling necessary to keep Scion fresh," Sturm said.

Toyota is still new to the Mexican retail market, arriving in 2002. Last year Toyota sold just 35,318 units in Mexico, up from 23,876 in 2004. Toyota produced 23,670 units in Mexico last year.

Mexico's market leader is General Motors at 249,714 units, followed closely by Nissan.

As far as North American investment goes, Toyota is on fire.

With little fanfare over the past several months, the world's No. 2 automaker has set projects in motion to enlarge almost every one of its North American operations.

Toyota is expanding production capacity at five assembly plants in the United States, Canada and Mexico. As part of those efforts, it is expanding the size of two factories that have not yet opened. It also is preparing to build its second North American commercial truck plant and increasing component production at four of its wholly owned component plants.

Toyota also is preparing to increase the size of its r&d unit in Michigan and is scouting for a place in the United States to build what will be another transmission factory.

"They are going for it," observes Alan Baum, an industry forecaster with the Planning Edge in Birmingham, Mich. "They're growing rapidly in this market and simply responding to the market."

Toyota is experiencing an American reality that is markedly different from that of its domestic competitors, General Motors and Ford Motor Co. While both U.S. giants struggle with downsizing, Toyota is picking up market share. Toyota Motor Sales U.S.A. sold 2,260,296 Toyota, Lexus and Scion units in the United States last year, up 39.6 percent from the 1,619,206 Toyota and Lexus units sold five years earlier.

In the past 90 days, Toyota has announced plans to:

* Use a Subaru factory in Lafayette, Ind., to increase North American Toyota Camry capacity by 100,000 cars a year.

* Expand the original scope of a Toyota RAV4 SUV factory that is barely under way in Woodstock, Ontario, targeting 150,000 vehicles a year instead of the 100,000 a year announced last summer.

* Enlarge its year-old Toyota Tacoma plant in Baja, Mexico, adding 20,000 of the pickups a year.

* Build a Hino commercial truck factory in Woodstock, Ontario, complementing Hino truck production in Long Beach, Calif.



The company is scheduled to open a Toyota Tundra pickup factory in San Antonio this fall. That project was planned to yield 200,000 Tundras a year; but last summer, Toyota expanded the plant to create capacity for 250,000 a year.

Toyota also is adding 50,000 units of annual capacity to its Georgetown, Ky., plant to produce a hybrid Camry.

Baum says he believes there are added risks for Toyota as it increases capacity.

"In the past, they could assure themselves of very stable and predictable volumes," he says. "They were only building 100,000 to 150,000 Tundras, and there wasn't much risk. Now, for example, they're planning capacity of 400,000 Tundras. They will be opening themselves up to bigger fluctuations in sales."

How do Toyota's planners determine if they need a new plant in North America?

The company assembled 1.56 million cars and trucks in North America in 2005, while selling 2.47 million units. That means it assembled in North America 63 percent of the vehicles it sold here.

So today Toyota is assembling more vehicles in North America than its 60 percent minimum target for local production.

But if Toyota's decade-long average growth rate of 8 percent per year continues, it will be selling 3.63 million units in 2010. At a more modest 5 percent, it will sell 3.15 million in 2010. That means Toyota will need between 1.7 million units and 2.2 million units of North American capacity in 2010.

Given Toyota's recent expansion announcements in Texas, Canada and Mexico, it will have about 2.06 million units of capacity in North America.

That's enough to cover a modest growth rate.

But it would not represent 60 percent of a more aggressive growth rate, or any sales gains made after 2010.

ANN ARBOR, Mich. - Toyota Motor Corp. has not decided yet whether to put up a billboard along U.S. 23 in York Township, advertising its plans to Detroit-area commuters. But soon enough, passers-by will know.

Toyota is preparing to break ground on a $150 million r&d center in York Township, 40 miles outside Detroit, the home of the traditional Big 3.

The building, which will fall under the unwieldy new corporate moniker of Toyota Motor Engineering and Manufacturing North America Inc. when it opens in 2008, will not be a breakthrough.

Toyota has been conducting r&d work just down the road in Ann Arbor for years. The r&d center will be more of a coming out.

"For a long time, we made a very conscious effort to quietly go about our business," says Bruce Brownlee, general manager for corporate planning and external affairs at the U.S. r&d subsidiary. "We'll definitely be more visible here."

As the traditional U.S. auto industry scales back on the number of engineers it needs and the threat of layoff hangs over the heads of many, Toyota has been moving the other way.

The bigger Toyota's stake in the North American market gets, the greater the pressure to research, design, innovate, change and problem-solve close to its customers.

Bigger location

The York Township project will have nearly seven times as much property - 690 acres - as Toyota's existing r&d campus, which means there is room to grow.

Toyota plans to keep the Ann Arbor campus for various functions, including powertrain and materials research.

For now, only one building is planned in York Township. A 350,000-square-foot structure will house all of Toyota's U.S. vehicle engineering group, bringing together departments that are scattered in different buildings around Ann Arbor. Toyota now has groups working in Ann Arbor on interior design projects that are physically separated from other pieces of its vehicle projects.

That doesn't rule out the possibility of a large test track, though. Brownlee says no decision has been made on building one.

In York Township, the view from the window of Brownlee's U.S.-designed Sienna minivan takes in a sweeping tract of open flat land and trees along U.S. 23.

"Over here," Brownlee tells a visitor, pointing out the land adjacent to the Toyota site, "and also over here, we'll be able to use for expansion some day."

Forbidding neighborhood

An empty state mental hospital is on the property. It will cost Toyota $10 million to tear that down and clear the land. The hospital has moved to a neighboring piece of land, next to a state prison. The two facilities together give the impression of a forbidding neighborhood wrapped in razor wire.

"Once we've built the new building," Brownlee notes, "we would have enough land left over to build an entire assembly plant. But that's not going to happen. The township wanted to maintain the light-density residential and agricultural feel of the community, and that's what we're doing."

It started in an old mechanic's garage in Ann Arbor. Toyota found a garage sitting on a small and badly shaped hillside lot near the center of town in 1972, and there conducted emission tests to file its EPA data. That garage still exists.

The building now is used for much the same purpose by Suzuki Motor Corp.

Emission testing and the occasional engine-tuning were about all a Japanese importer needed in the United States until the mid-1980s. Even by the time Toyota's first U.S. vehicle manufacturing was under way in 1986, Toyota employed only 61 people in r&d here. But the numbers began to grow in step with Toyota's expanding manufacturing operations.

Swell to 1,100

By 1996, there were 400 r&d employees. By last year, when Toyota announced the expansion into York Township, there were 750 personnel. There will be 900 this year, and at least 1,100 by the time the new building opens in 2008.

Toyota's U.S. engineers now turn out finished vehicles for the North American market but still rely on Japan for the powertrains that drive them. This year, the Ann Arbor unit will see its handiwork emerge from factories in Indiana and Texas in the form of a full-sized Tundra pickup.

Fittingly, Toyota's groundbreaking also will beam a message to the North American auto industry: "We are here."

Be here

Other Toyota products are relying on increasing American involvement. Ann Arbor played a key role in the development of the Sienna. The 2006 Avalon was led by a project manager in Ann Arbor.

The Michigan center also now houses a satellite office of Toyota's U.S. styling operations, Calty Design Research Inc. in Newport Beach, Calif.

"By having Calty right here with us, we don't have to send people out to California to work on the hard parts," Brownlee says. "It speeds up the entire process. And more than that, it lets us sit and work on design issues together, to sidestep problems as we identify them."

Being on site is critical for Toyota. In the 1990s, the automaker began a practice it calls obeya, which roughly translates to "big room."

Toyota now brings engineers from all parts of a vehicle development project into a war room-type setting in an effort to whack through problems. Engineers from different areas of a project, such as chassis and body panels, who might not routinely interact, work together to solve problems.

Obeya is vital

Obeya will be an important part of the York Township operation, Brownlee says.

Theoretically, at least, Toyota could continue to develop vehicles from Japan, without all the expense and trouble of duplicating r&d resources in America. But the penalty can be huge, Brownlee says. "Look at the minivan that preceded the Sienna," he says.

"It was the Previa - designed and developed in Japan. We told them that it needed to be bigger. It wasn't until our Japanese engineers came to the United States and drove the highways and experienced what it's like to drive a big vehicle here that they could see our point.

"You can design from far away," he says, "but you just won't capture the nuances of the local market unless you're here."