GM cuts ties with Toyota in U.S. joint-venture

DETROIT Mon Jun 29, 2009 4:13pm EDT

The U.S. flag flies at the Burt GM auto dealer in Denver June 1, 2009. RTEUTERS/Rick Wilking

The U.S. flag flies at the Burt GM auto dealer in Denver June 1, 2009. RTEUTERS/Rick Wilking

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DETROIT (Reuters) - General Motors Corp GMGMQ.PK cut operational ties on Monday to a northern California auto plant it had operated in a joint-venture with Toyota Motor Corp (7203.T) since 1983.

The move deepens uncertainty over the future of a plant that employs over 4,000 workers and was once seen as a ground- breaking experiment in bringing production efficiencies pioneered in Japan to a U.S. workforce.

GM, which has been operating in a U.S. government-sponsored bankruptcy since the start of the month, said it was unable to reach an agreement with Toyota on a new production plan for the Fremont, California plant.

"After extensive analysis, GM and Toyota could not reach an agreement on a future product plan that made sense for all parties," GM said in a written statement.

GM and Toyota have been 50-50 partners in the joint-venture plant commonly known by its acronym NUMMI for the New United Motor Manufacturing Inc.

The Pontiac Vibe -- the only GM vehicle built at the plant -- will go out of production in August under a previously announced plan by GM. Toyota uses the plant to build the Corolla sedan and the Tacoma compact pickup truck.

Toyota, which surpassed GM as the world's top automaker in 2008, said it had hoped the joint-venture would continue and said it would consider whether to continue operating the plant on its own.

"While we respect this decision by GM, the economic and business environment surrounding Toyota is also extremely severe, and so this decision by GM makes the situation even more difficult for Toyota," Toyota said in a statement.

"We will consider alternatives by taking into account various factors, including the current distressed market conditions, our overall North American manufacturing capacity, and the viability of the facility as a stand-alone operation without GM production," the Japanese automaker said.

GM is dropping its Pontiac brand as part of an effort to shed dealers, slow-selling nameplates and debt in a bankruptcy that will effectively nationalize the automaker with a $50 billion investment from the Obama administration.

Production of the Vibe accounted for less than a quarter of NUMMI output from the start of the year to mid-June, according to data from trade publication Automotive News.

'THE DOOR IS OPEN'

Toyota built 48,872 Corollas and 10,838 Tacomas at the plant during the first six months of the year, according to the Automotive News data. That represented about 15 percent of Toyota's overall North American output.

A GM spokeswoman said the automaker was open to future partnerships with Toyota, but declined to comment on what those might include. The Vibe is based on the Toyota Matrix.

"I can tell you that the door is open to future opportunities with Toyota," said GM spokeswoman Elaine Redd.

GM and Toyota set up the joint-venture in 1983 when both sides had a clear stake in its success.

The U.S. automaker was hoping to learn from Toyota's "lean" manufacturing techniques, which minimizes waste and inventory to keep costs down.

Eiji Toyoda, the then chairman of Toyota, said the company hoped to make the plant "a model of economic cooperation between Japan and the United States" at a time when Japan's export boom was under scrutiny.

GM contributed the Fremont plant, which had been closed in 1982, to the joint venture. Toyota provided $100 million to retool the facility.

The plant represented Toyota's first production venture in the United States when it began operations in 1986.

Today, Toyota has 14 manufacturing facilities in North America, including assembly plants in Kentucky, Indiana, Texas and Mississippi.

The United Auto Workers union represents hourly workers at the NUMMI plant.

GM had signaled as late as Friday that there was still room for a "consensual" agreement to save the NUMMI deal and carry its ownership interest in the plant to the company expected to emerge from bankruptcy as soon as next month.

(Reporting by Kevin Krolicki; editing by Andre Grenon)

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