In January 2004, Pixar CEO Steve Jobs announced that The Walt Disney Company had chosen not to renew its contract with Pixar. However Michael Eisner stated that he was okay with this because he believed that the company could produce sequels to Pixar's films that would be just as good as the originals. With that in mind, Eisner opened a new animation studio in Glendale, California whose sole purpose was to produce sequels to movies that Pixar had produced. This new studio was named Circle 7 Animation, after the street on which it was located, Circle 7 Drive.
In addition to creating screenplays for sequels to Monsters, Inc. and Finding Nemo, the animators at Circle 7 also began developing ideas for a third Toy Story film. Among the rejected ideas was a script written by Teacher's Pet writers Bill and Cheri Steinkellner that involved Woody and the gang finding toys that had been stolen out of Andy's grandmother's attic in a whodunit-style mystery.
Finally, Disney chose a draft that had been submitted by Jim Herzfeld. However, they felt it needed some rewriting and gave Bob Hilgenberg and Rob Muir, writers of the sequel to Monsters, Inc., the task of doing so. Concept artists that worked on developing the look and character designs for the film included Ric Sluiter, Jim Martin and Shane Zalvin.
However, in January 2006, when new Disney CEO, Robert Iger decided that Disney was better off with Pixar than they were without them he bought the latter company for 7.4 billion dollars and subsequently closed down Circle 7 Animation, ending production on all their films.
After Buzz Lightyear inexplicably started to malfunction, Andy's mom sent him back to the factory in Taiwan where he was made in the hopes that they would fix him. However, upon learning that a worldwide recall had been issued on all Buzz Lightyear toys and that Buzz would merely be replaced, Woody, Jessie, Hamm, Mr. Potato Head, Rex and Slinky all shipped themselves to Taiwan and set out to rescue him. Meanwhile, at the factory, Buzz subsequently met a number of other recalled toys, from whom he would have learned that all useless toys got crushed by a giant machine, which subsequently would've led to him attempting unsuccessful escapes. Elsewhere Woody and the gang got found by a human and taken to a daycare center which they were eventually able to escape using a vehicle that they constructed out of a shopping cart, a vacuum and some balloons. Although Buzz ended up being partially injured by the toy-crushing machine, the other toys made it to the factory in time to save him.