Toyota to build Prius in U.S.

By Soyoung Kim and Poornima Gupta

DETROIT (Reuters) - Toyota Motor Corp (7203.T)(TM.N) said on Thursday it would start building its Prius hybrid in the United States in 2010 and suspend production of slow-selling big trucks for three months in a sharp reversal of strategy forced by slumping sales and high gas prices.

Toyota, which has faced widening shortages of fuel-efficient small cars in recent months, will start building its top-selling hybrid at a new Mississippi plant, originally scheduled to produce the Highlander sport utility vehicle.

The unusual and costly moves by Toyota, now the global auto sales leader, underscored the pressure across the industry as major automakers scuttle truck production and take steps to ramp up output of passenger cars to keep up with a dramatic shift in U.S. buying patterns.

Rival General Motors Corp (GM.N) is closing four truck plants in North America and is planning to sell or restructure its Hummer SUV brand while Ford Motor Co (F.N) has delayed the launch of its redesigned top-selling F-150 pickup truck to clear swollen inventory of vehicles.

Hit by an industrywide slump in trucks and SUVs, Toyota posted a 6 percent drop in first-half sales in the United States, its single-biggest market.

To clear inventory, Toyota said it would suspend production of its Sequoia SUV and redesigned Tundra pickup truck for three months beginning in early August.

At the same time, Toyota said it would work to retool a plant still under construction near Tupelo, Mississippi, to build the new Prius, starting in late 2010. All of the Prius models now sold in the United States are built at a dedicated assembly plant in Japan.

The Tundra represents Toyota's attempt to break into the market for full-size pickup trucks, still dominated by Detroit automakers. The Japanese automaker had called plans for its expanded production in the United States its most important vehicle launch ever.

But Toyota, like its American rivals led by General Motors Corp (GM.N), overestimated demand for the heavy work trucks that had seen a boom over the past decade when gas was cheaper and the U.S. housing market was embarking on its own rally.

Toyota said it would stop making the Tundra pickup truck at its Princeton, Indiana, plant and concentrate production at the $1.2 billion plant it opened in San Antonio in early 2007.

Those steps will cut Toyota's Tundra production capacity by a third to 200,000 units annually, a concession that the pickup truck market is not going to bounce back.

Toyota currently has five months of Tundra inventory, a Toyota spokesman said.

Jeff Liker, University of Michigan engineering professor and author of "The Toyota Way," said that Toyota had made a rare, outsized mistake by betting big on the Tundra.

"That was more bold and ambitious than I normally expect from Toyota and more risky than they are used to," he said. "What they are doing now with the adjustment is more traditional Toyota."

DEALERS HAIL PRIUS MOVE