Toyota Motor Corp. plans to shift production of Corolla compact cars from Cambridge, Ont., to a new factory in Mexico, ending an era that began when the company opened its first Canadian assembly plant in 1988.

Corolla production in Cambridge is expected to be replaced by other, larger vehicles when the auto maker’s first full-scale Mexican plant begins production 2019, said sources familiar with Toyota’s plans, which are scheduled to be announced Wednesday.

While employment levels at Toyota’s two Ontario plants are not expected to change, the shift underlines how Canada’s competitive position in vehicle manufacturing is eroding.

It’s a sign that almost 30 years after establishing manufacturing operations in Cambridge, Toyota no longer generates sufficient profit from manufacturing in Canada the bestselling vehicle in its Canadian lineup.

The company has assembled about 3.5 million Corolla models in Cambridge. Its first vehicle, a blue 1988 model, still adorns the lobby of the factory.

Costs are higher at Toyota’s assembly plants in Cambridge and Woodstock, Ont., than they are at its factories in Kentucky, Indiana and other U.S. states, so it makes sense to build more expensive vehicles at the Canadian operations, sources said.

A report done in 2013 for the Canadian Automotive Partnership Council, an industry labour group set up to advise the federal and Ontario governments, warned that assembly is moving to the Southern United States and Mexico because of higher logistics, labour and parts costs.

“At least one assembler with operations in both Canada and the U.S. South indicates that, on an annual basis, the costs of operating an assembly facility is significantly less in the U.S. South than in Canada,” the report said. That comparison was between costs in Cambridge and Toyota’s factory in Kentucky, sources have said.

The possibilities to replace Corolla include adding RAV4 production to Cambridge – that crossover is already assembled in Woodstock – and the larger Toyota Highlander crossover and possibly more Lexus models, sources said. The four-year horizon for building the Mexico plant also means Toyota could add new vehicles now on the drawing board or not developed yet.

About 3,000 of Toyota’s 5,600 employees in Cambridge assemble Corolla models. Toyota Motor Manufacturing Canada Inc. also assembles the Lexus RX350 luxury crossover in the same factory. The vehicles share a body shop, but each has its own paint shop and final assembly line.

Toyota is relatively late to the party in Mexico, which landed $3.4-billion (U.S.) in investments in new assembly plants last year alone and now boasts a roster of auto makers that includes the largest Detroit-based, European, Japanese and South Korean companies and several luxury brands.

Reuters reported Tuesday that Toyota’s investment in Mexico will be $1-billion.

Toyota operates a plant in Baja, Mexico, that does final assembly of compact pickup trucks, but it has no established supply base in the country, unlike the parts producers that have been established around its other North American plants to supply components.

Because of that lack of suppliers, logistics costs will negate the low-cost advantages of locating in Mexico in the short term, said one senior industry source familiar with the company’s North American operations.

“So the return from Mexico is long-term, not shorter term,” the source said.

Separately, other wire service reports said on Tuesday that Ford Motor Co. will announce $2.5-billion in engine investments on Friday, including a project that the Ontario and federal governments tried and failed to land for Windsor, Ont.

The Globe and Mail
Published Tuesday, Apr. 14 2015, 7:43 PM EDT
Last updated Tuesday, Apr. 14 2015, 11:41 PM EDT