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Workers assemble cars at the Toyota plant in Cambridge, Ont.

KEVIN VAN PAASSEN/THE GLOBE AND MAIL

Toyota Motor Corp. will invest hundreds of millions of dollars to replace Corolla production that is being shifted to Mexico and to upgrade its Canadian factories for a new system to assemble vehicles, the president of the company's Canadian manufacturing arm says.

The plant that now makes the Corolla will assemble mid-sized, higher-value vehicles after 2019, but the model or models have not been identified yet, Brian Krinock, president of Toyota Motor Manufacturing Canada Inc. said.

"We're committed to investment, we're committed to modifying plant facilities, but the model is still yet to be named," Mr. Krinock said. "That's a normal internal process within Toyota." The Cambridge, Ont., plant also assembles the Lexus RX350 crossover while a plant down the road in Woodstock builds the Toyota RAV4 crossover.

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Assembly of the compact Corolla, which was the first model to come off the line when Toyota opened its first plant in Canada in 1988, is being shifted to Mexico as part of a realignment of the auto maker's North American manufacturing network. The realignment includes revamping its plants to make them more flexible and making equipment used to build cars more compact under a system called the Toyota New Global Architecture.

The new system "is an improvement over what we do today and that's all about having the ability to respond to market," Mr. Krinock said.

He spoke after the company confirmed that it will spend $1-billion (U.S.) to build a factory in Mexico that will take over Corolla production from Cambridge for the 2020 model year.

That move consolidates North American production of small cars in the southern part of the continent – Corollas are also assembled at a factory in Blue Springs, Miss. Output of mid-sized and larger vehicles will be maintained at the two Ontario plants and factories in Kentucky and Indiana.

The shift is not expected to affect the jobs of the 3,000 workers who now make Corolla models.

"Our objective is to maintain our team members and our ability to provide stable employment," Mr. Krinock said.

The new Mexican facility is the first North American plant announced by Toyota since 2011, when chief executive officer Akio Toyoda placed a three-year moratorium on new plants.

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That pause was not, as is commonly thought, a reaction to the recall crisis that dogged Toyota in 2010, said Jeffery Liker, a University of Michigan professor who has written books about the company.

Instead, Prof. Liker said it was to make sure all the company's factories were operating at 90 per cent of capacity or higher and that it was making the most efficient use of its assets.

"It was a challenge to the existing manufacturing organization saying use what you have, use the Toyota production system, use kaizen [continuous improvement] and figure out how to use what you already have," he said.

Since the Great Recession of 2008-2009, when Toyota lost money for the first time, Mr. Toyoda has been pushing the organization to reduce fixed capital costs so that the company could handle a 30-per-cent reduction in sales and break even when plants were operating at 70 per cent of capacity, Mr. Liker said.

Toyota's plants in North America are humming at the moment and the company will need even more production capacity by 2019 if market forecasts are borne out.

With sales forecast to hit 23.2 million that year and assuming its market share stays static at 13.3 per cent, Toyota would need to add production of almost 400,000 vehicles to ensure North American factories build at least 73 per cent of the vehicles it sells in Canada, the United States and Mexico. The auto maker assembled 1.89 million vehicles in the three countries last year.

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