Toyota to build $1.3 billion plant in Mississippi

DETROIT (Reuters) - Toyota Motor Corp. said on Tuesday it would build a $1.3 billion assembly plant near Tupelo, Mississippi, the latest step by the fast-growing automaker to keep pace with American demand for its light trucks and cars.

Toyota said the new plant, which will employ some 2,000 workers, would build its next-generation Highlander sport utility vehicle. The plant, expected to begin production in 2010, will have the capacity to produce 150,000 vehicles per year.

Toyota, which is expected to claim the title of the world's biggest automaker from General Motors Corp. this year, had said it was looking to build its eighth vehicle assembly plant in North America.

Other states, including Arkansas and Tennessee, had been vying for the plant and the jobs it will create in production and related industries like construction and auto parts.

With a 13-percent jump in 2006 sales, Toyota overtook Chrysler as the No. 3 car maker in the United States in 2006, putting its market share at a record high 15.4 percent. Toyota is widely expected to edge past Ford Motor Co. this year.

Toyota said it had been granted about $296 million in tax incentives by Mississippi, which would be less than roughly $360 million in concessions granted to Nissan Motor Co. for opening an assembly plant in Mississippi in 2003.

"Early on, Toyota made it clear to us that they didn't want to engage in an incentive bidding war," Mississippi Gov. Haley Barbour said in a news conference from Tupelo monitored by Webcast.

Barbour said the plant could ultimately employ up to 4,000 workers, although Toyota's initial hiring target was only half of that. The jobs will pay about $20 per hour plus benefits.

Ahead of the opening of the Mississippi plant, Toyota will add a combined 250,000 units in annual capacity in North America by using a line at an Indiana factory of affiliate Fuji Heavy Industries and opening a new Canadian plant next year.

Late last year, Toyota began production of the all-new Tundra pickup truck at a new 200,000-units-per-year factory in San Antonio, Texas.

POTENTIAL FALLOUT

Toyota has been under pressure to boost North American production to avoid the potential political fallout from the jump in its vehicles shipped from Japan to the United States.

Last year, just more than half of the vehicles Toyota sold in the United States were built in North America, compared with a rate of more than 70 percent for rival Honda Motor Co..

Toyota's sales have grown at an average rate of almost 9 percent over the past decade, and many analysts say Toyota will need to add four or five additional assembly plants.

The Japanese automaker has set a goal of having 60 percent local production in the United States.

Erich Merkle, an auto analyst with IRN Inc., said Toyota's sales growth in light trucks last year had almost offset the expected output from its new San Antonio plant.

"If you go out into the next decade, I have no doubt that they need to add more plants," Merkle said.

Toyota sold almost 130,000 of its Highlander SUVs last year, including a hybrid version.

Trade journal Automotive News quoted a source familiar with the automaker's plans as saying the Tupelo plant would make a new crossover utility vehicle in a second phase of expansion.

The decision by Toyota to open its next plant in Mississippi is part of a trend by Asian automakers to move production to the southern United States, far from the historic hub of unionized auto production in Michigan, Ohio and Indiana.

Tupelo, widely known as the birthplace of Elvis Presley, has been a center for furniture manufacturing, although many of those jobs have been lost in recent years to competition from China.

Barbour said the pool of potential labor from that industry was one factor in Toyota's decision to build its plant there.

He said about half of Mississippi's incentives would be spent on readying the 1,700-acre site of timberland for Toyota, while about half would go for job training programs.

Mississippi had the highest unemployment rate in the United States in December at 7.5 percent, just ahead of Michigan, home to the U.S. auto industry.

Some U.S. critics have charged Toyota and other Asian automakers with using their expansion programs to court influence with politicians vying to attract the investment.

Trent Lott, a Republican senator from Mississippi, said Toyota had aligned itself with the economic interests of his state. "When you're our constituent, we are warriors on your behalf and I can assure you we will look after your interests," Lott said at the news conference, thanking Toyota executives.

($1=120.63 Yen)

(Additional reporting by Edwina Gibbs and Chang-Ran Kim)