Toyota Seeks to Improve Prius And Plans to Produce Car in U.S.

By NORIHIKO SHIROUZU
May 22, 2006

LEXINGTON, Kentucky -- Toyota Motor Corp. is determined to improve significantly the efficiency of its Prius gasoline-electric hybrid car and produce it in the U.S., in part to defend the momentum it has built with the small car in the American market, Toyota Vice Chairman Fujio Cho said.

"Given the popularity the car has proven and given the way American consumers have snapped up the car, I have been urging the company, almost as a matter of strategy, to produce the Prius in the U.S.," Mr. Cho said.

Toyota has said it aims to sell three million cars and trucks a year in the U.S. by 2010. Mr. Cho has said that he wants to see Toyota produce about 70% to 75% of those vehicles in North America, up from about 60% now. The Japanese executive also said that if demand for Toyota's vehicles keeps up its momentum, the company will likely need to build an eighth assembly plant in North America, where it has five plants operating and another two that will come online within the next few years.

Mr. Cho also said Toyota is pushing to shrink major hybrid parts like batteries, inverters and electric motors to make them as small as one-quarter their current size. He said Toyota had considered building the current-generation Prius in the U.S., but decided against it because the components were too bulky and costly to ship from Japan. Toyota produces in Japan most of the hybrid cars it sells around the world.

To produce hybrids profitably in the U.S., Mr. Cho said, Toyota must significantly cut the size of the major hybrid components. "Even though it is a tough challenge, we've been telling our engineers to cut the size of key hybrid component systems by half, or to make them just one-quarter of their current size," Mr. Cho said.

Toyota engineers involved in the Prius's redesign said they are trying to shrink not only the size of major hybrid components but also their weight and manufacturing costs. Smaller, more compact components would also mean the redesigned Prius, expected to hit the market within the next few years, would be more affordable and boast better fuel economy.

In 2005 Toyota sold 107,897 Prius cars in the U.S. Although a company spokesman said Toyota dealers have only several days of supply, sales of the hybrid car have slowed markedly this year. For January through April, sales of the Prius slipped 11% from a year earlier to 30,357 vehicles. A spokesman said the sales slide wasn't caused by waning consumer interest in the Prius but by the lack of manufacturing capacity for the car in Japan because the company is ramping up production of other hybrid cars.

Earlier this month, John Mendel, an American sales executive of Japan's Honda Motor Co., said the auto maker was closely monitoring demand in the U.S. for a performance-oriented hybrid version of the Honda Accord with a V6 engine in response to its slow sales. He said U.S. consumers, apparently reacting to firm gasoline prices in recent months, are now "equating hybrid to high fuel economy, not to performance."

Honda recently said it will develop by 2009 a gasoline-electric hybrid car model that its executives said will be more affordable and smaller than the Civic and will likely provide industry-leading fuel economy.

Write to Norihiko Shirouzu at norihiko.shirouzu@wsj.com