Thread: It Makes Sense For Toyota To Leave California For Texas

4/27/2014
It Makes Sense For Toyota To Leave California For Texas

For Japanese auto brands, the logic of keeping their U.S. sales and administrative arms in California is breaking down under the outsized penalties of conducting business in the Golden State and the changing dynamics of the North American automotive industry. So Toyota is leaving, according to Automotive News.

And where is Japan’s biggest automaker relocating its sales and marketing operations in America? Why, North Texas, of course. The move MOVE -5.51% to Plano, Texas, will involve most of the 5,000 managers and employees at Toyota’s current Torrance, Calif., headquarters, the magazine said.

Texas Gov. Rick Perry apparently didn’t even have to make a recruiting trip to southern California to get Toyota to do this, although he has helped lure plenty of companies with that gambit over the last several years.

And yet Texas has scored one of the biggest prizes so far in its very focused, state-on-state battle with the administration of Gov. Jerry Brown to get plum companies now headquartered in California to abandon the bluest state for the reddest one.

Clearly, Perry caressed a trump card in the fact that Toyota has enjoyed a deep relationship with Texas through its $2.2-billion truck-assembly complex near San Antonio.

Plus, the fact is that, as Toyota has become a more U.S.-centric company with important assets all over the country, it makes sense for the Japanese market leader to distribute its operations in a new way. Toyota’s 14 North American manufacturing facilities now build 71 percent of the vehicles the company sells in the United States, up from 55 percent in 2008.

A half-century ago, Toyota and other Japanese brands clustered in southern California when they began their assault on the U.S. market because California offered the single best market opportunity for Asian brands coming to America and because the state’s location closest to Japan made logistics easiest.

For most of the time since then, California’s justified reputation as America’s automotive, societal, cultural, and economic bellwether continued to ratify the Japanese brands’ focus there. Consider how Toyota was able to grow its Prius hybrid line into the segment’s dominant brand by starting with an emphasis in California.

But now Toyota and most of it Japanese rivals are treating North America like their domestic market — meaning that a California lens isn’t always the best one. Maybe a new headquarters in Flyover Country will be.

Toyota’s oldest U.S. manufacturing operations, for example, are in Georgetown, Ky. The company now is making Corollas in Mississippi and exporting them to Latin America. It produces vehicles from Indiana to Alabama. And Toyota performs much of its engineering work in Michigan.

Plano is closer to all of those places than Torrance is. And while there’s still a significant divide between Toyota’s engineering and manufacturing operations, and the sales and marketing folks, the changing nature of the auto business means they need to get closer all the time.

Nissan made the first such move anyway, leaving its U.S. sales headquarters in California and relocating Nissan North America to Nashville in 2006.

Besides, California’s business climate is becoming an even bigger downer. California has become infamous with business executives and owners there not only for high tax rates and complex taxing schemes but also for overzealous regulations and regulators that have managed to stifle the entrepreneurial energy of thousands of companies.

Even Hollywood movie studios have been souring about producing flicks in California, increasingly reckoning that the sweet tax breaks and assistance packages now offered by so many other states offset the legacy advantages and ideal production climate in California.

About the only vast remaining pocket of dynamism in the California economy is Silicon Valley, where the mastery of the global digital economy by companies ranging from Google GOOG -1.29% to Hewlett-Packard HPQ +1.39% has become so complete that they have been able to succeed despite the home-state business landscape.

In the annual Chief Executive magazine “Best States / Worst States” ranking that surveys CEOs for their opinions, Texas has been holding on to the No. 1 spot for a while; California seems permanently relegated to No. 50.

As Automotive News put it, “Despite the deep, creative talent pool in greater Los Angeles, doing business in California has become more expensive for companies and their workers.” Bestplaces.net said that the cost of living for employees is 39 percent higher in Torrance than in Plano, and housing costs are 63 percent lower in Plano.
Thus, over the last 10 years, the Lone Star State has stolen so many jobs from the paragon of the Pacific Coast that Toyota’s reported move should come as no big surprise.

http://www.forbes.com/sites/dalebuss...nia-for-texas/

Hopefully these economic "refugees" from California won't do to Texas what they did to Colorado. They run away from the mess they have made and then want the new place to be "just like home".

Toyota to Unify North American Operations in Texas

By Alan Ohnsman Apr 28, 2014 2:00 PM PT

Toyota Motor Corp. plans to consolidate U.S. sales, engineering and finance operations to suburban Dallas, sending 4,000 jobs from California, New York and Kentucky to a new North American headquarters.

The shift to Plano, Texas, affects about 2,000 people at Toyota’s U.S. sales headquarters in Torrance, California, 1,000 employees from its Kentucky engineering and manufacturing unit, and some staff from its holding company in New York, the carmaker said in a statement yesterday. About 1,000 people from its finance company will also go to Texas by 2017, Toyota said. Headquarters construction is projected to be complete in late 2016 or early 2017.

“Toyota’s announced move to Texas is a shock since the automaker has been part of the Southern California community for decades, but it indicates that money -– and tax incentives –- talks when it comes to headquarters locations,” said Jack Nerad, senior industry analyst for Kelley Blue Book. “The dollar savings from the relocation should be fairly easy to quantify, but what’s much harder to quantify is the cost in business disruption and ‘brain-drain’ such a move can cause.”

The relocation is a win for Texas Governor Rick Perry’s campaign to lure California companies and a blow to the Golden State, the biggest U.S. auto market and proponent of the strictest clean-air rules. Toyota’s Prius hybrid has been California’s top-selling model for the past two years and helped secure a leading 22 percent market share. Perry has made repeated visits to California to entice businesses to his state with promises of lower taxes and easier regulations.

Photographer: Yuriko Nakao/BloombergThe shift to Plano, Texas, affects about 2,000 people at Toyota Motor Corp.’s U.S.... Read More

Texas Investment

The main goal of the shift to Texas is to boost efficiency, not cost savings, Jim Lentz, Toyota’s North American chief executive officer, said in a phone interview. Lentz only discussed the matter with Perry yesterday, when he also notified California, he said.
“This is probably the most significant change we’ve ever had” in North America, Lentz said in an interview yesterday. “In the next three years we are going to bring three separate entities to the same headquarters for the first time.”
While the sales, engineering and corporate units will initially remain as separate legal entities after the shift, “it may make sense over time to combine these three entities into one,” Lentz said. He didn’t provide a cost for the new facilities and relocation of workers. The latter will be the biggest expense of the relocation, he said.
Perry’s office yesterday said it expects Toyota to invest more than $300 million in the Plano headquarters, supported by $40 million from the Texas Enterprise Fund.
Relocation Offers

“Toyota understands that Texas’s employer-friendly combination of low taxes, fair courts, smart regulations and world-class workforce can help businesses of any size succeed and thrive,” Perry said in a statement. “We’re proud that both the Tundra and Tacoma bear the words ‘Made in Texas,’ and we’re excited our state will be the nexus for Toyota’s North American operations moving forward.”
While some California employees may not choose to relocate to Texas, “we’re going to encourage everyone to go,” Lentz said. “If they want to come, there’s a job for them.”
Toyota’s average revenue per vehicle is $33,287 in North America, where it earns a 3.3 percent operating margin, while in Japan, Toyota gets $29,223 per vehicle and a 10.5 percent operating margin, according to Kevin Tynan, auto analyst with Bloomberg Industries.
The world’s largest carmaker, which is based in Toyota City, Japan, has more than 5,300 California employees, most at its Torrance campus near Los Angeles in sales, finance, marketing, engineering and product planning. Erlanger, which also manages Toyota’s North American factories, is near Cincinnati.
‘Extremely Disappointed’

“Obviously, we are extremely disappointed by Toyota’s decision,” Kentucky Governor Steven Beshear, a Democrat, said in a statement. “We would have welcomed the opportunity to discuss options with Toyota, but we will now turn our attention to preparing for this transition.”
Toyota will keep its Georgetown manufacturing plant in Kentucky, supplier facilities, as well as some other units, according to a letter from the automaker’s executives to Beshear that was dated yesterday.
“We are continuing to add good jobs at the Georgetown plant,” according to the letter. The site is adding assembly of Lexus ES 350 sedans to output of Toyota Camry mid-size cars and other models.
Nissan Motor Co. (7201) also left California in 2006, relocating its North American headquarters in lower-costTennessee. In Nissan’s case, only 42 percent of employees initially chose to relocate.
Leaving California

In February, Occidental Petroleum Corp. (OXY) said it was splitting its operations, keeping a portion in California and setting up a new unit in Houston. Raytheon Co. (RTN), a technology company that specializes in defense, last year moved its space and airborne systems unit to McKinney, Texas, from southern California. Last year, Tokyo-based security software company Trend Micro Inc. said it would move its U.S. headquarters from Cupertino, in Silicon Valley, to Irving, Texas, according to the Perry administration.
While Texas is home to Toyota’s pickup truck plant in San Antonio and a General Motors Co. (GM) factory in Arlington, the state traditionally hasn’t been a center of auto industry activity.
Annual Forecast

Toyota’s decision to scale back in California, where it established operations in 1957, comes as the company expects to report a record 1.87 trillion ($18.3 billion) of net income when it releases fiscal year results next month. Along with rising sales in North America and other international markets, Toyota’s earnings this year are benefiting from a decline in the value of the yen, which surged in 2011.
Since the company made that forecast, it agreed to a $1.2 billion fine to settle a U.S. Justice Department investigation into how it delayed recalling popular models after complaints of unintended acceleration.
Toyota’s American depositary receipts rose 0.5 percent to $107.07 at the close in New York yesterday and have fallen 12 percent this year.
Toyota’s move is about more than just saving money, saidJeff Schuster, an auto analyst with LMC Automotive.
“By locating in Texas, they locating closer to where they build,” said Schuster, who is based in Troy, Michigan. “The majority of vehicles sold by Toyota now are built here. So it doesn’t make as much sense as it did initially to be in California, when it set itself up to be closest to Japan and the ports.”
To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net
To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net Niamh Ring

http://www.bloomberg.com/news/2014-0...-to-texas.html

Texas is giving Toyota, a foreign owned business,
$40 MILLION of taxpayer money, to move to Texas.

Texas offers Toyota $40M for HQ move - Time Warner Cable ...

austin.twcnews.com/content/news/.../texas-offers-toyota--40m-for-hq-mo...‎
6 hours ago - The state of Texas has offered Toyota $40 million as the automaker begins moving its U.S. ... since last year, trying to convince top employers there to move to Texas...