China or Mexico? Is Lean an Alternative?


    Winding Road » Archive » Japan Report: Toyota To Build 8th Plant In MS, But We Hear No. 9 Is Already In The Works…

    Rumors are already going around about the NEXT factory that Toyota will build in North America. The rumor is a small car factory in Mexico.

    In the wake of Toyota's announcement that it would build its eighth U.S. manufacturing plant in Mississippi to build the next generation Highlander by 2009, a Japanese newspaper is reporting that Toyota is already planning its ninth plant, this time in Mexico.

    The Japanese media says Toyota will build a new 1.0-liter compact car in this plant, which could get going as soon as 2010.

    There was more whining in the USA Today yesterday that Chrysler can't profitably build small cars in the U.S. because of high labor costs. So, they're looking to China.

    As Jim Womack said in my podcast interview with him, “What's wrong with Mexico?” Mexico offers cheap labor AND it's closer to the U.S. than China, which would reduce supply inventory and transportation costs. Plus, there's got to be less political risk in Mexico compared to China.

    Chinese carmaker, Chrysler near deal

    Chrysler Group moved a step closer Tuesday to becoming first to bring Chinese-made cars to the USA.

    Chrysler can't afford to build a small car in the USA, where labor and other costs are too high to make a profit.

    But in China, labor rates can be as low as $1 or $2 an hour, and Cosmai says he suspects that building a modern auto plant can cost half as much as in the USA.

    The adjacent USA Today article about Toyota's Mississippi plant announcement showed a box with all of the Toyota North America plants, including the plants that build the small Corolla and Matrix vehicles. Of course, maybe Toyota isn't profitable with small cars either, but they can afford to keep the production here for political reasons?

    Assuming that there are about 25 labor hours in a small car (including stamping, etc.) you can do the math. Should labor costs, even on a $10,000 vehicle, be too much of a hurdle that you can't overcome with Lean?

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    Mark Graban
    Mark Graban is an internationally-recognized consultant, author, and professional speaker, and podcaster with experience in healthcare, manufacturing, and startups. Mark's new book is The Mistakes That Make Us: Cultivating a Culture of Learning and Innovation. He is also the author of Measures of Success: React Less, Lead Better, Improve More, the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, and the anthology Practicing Lean. Mark is also a Senior Advisor to the technology company KaiNexus.


    1. The 25 labor hours must be for assembly, excluding components. And if you’re trying to run lean, there’s much to be said for colocation of at least some of your suppliers. So, labor costs of (at least some) components need to be considered, as well as assembly labor.

    2. Simple answer = No. Toyota is building plants in the USA and making a lot of money (as well as building plants elsewhere for those markets). Others are building in China and not making money. The big waste in most companies are in poor management not in paying more for labor.

    3. Labor costs are not the driver in making money in manufacturing. It is the committment to eliminate waste through developing the best processes that realize profit. Therefor some manufactures make money no matter where they put a plant. See Toyota!


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