Texas to pay $10,000 for each Toyota job
It's 'the biggest win we've had in a decade,' Gov. Rick Perry says. 'We've got a few problems,' California Gov. Jerry Brown says.
The moves disclosed on Monday will be the most significant changes in decades to the way the world's largest auto maker does business in its single biggest market.
The decision also has political and economic repercussions for the states of California, which will lose as many as 3,000 jobs, and Texas, which will gain roughly 4,000 jobs.
Jim Lentz, chief executive of Toyota's North American operations, said the decision to consolidate in the Dallas suburb stemmed from conversations he had with Toyota CEO Akio Toyoda about a year ago, soon after Lentz got his current job.
Toyota's current sales and marketing unit headquarters in Torrance, Calif., was too far from the auto maker's factories in Kentucky, Indiana, Mississippi and Texas and from its engineering center in Ann Arbor, Mich., Lentz said. Erlanger, Ky., where Toyota's North American manufacturing operations are now based, was too small, he said.
Toyota narrowed its preferred locations to Denver, Atlanta and Charlotte, N.C., before choosing the Dallas-Plano area, a person familiar with the matter said. Real-estate firm Jones Lang LaSalle (JLL) handled the search.
"We weren't pursued by Texas," Lentz said. "It isn't a Texas versus California discussion."
California's business climate and costs of living have become sensitive topics in the state, especially in light of Texas Gov. Rick Perry's efforts to woo employers from the Golden State with promises of lighter regulation and lower taxes.
Japanese auto maker Nissan Motor moved its U.S. headquarters to Nashville, Tenn., from California in 2006. Some high-level Honda Motor (HMC) employees left the state last year for Ohio. Honda said the company had no plans to move its U.S. sales and marketing headquarters out of the Los Angeles area.
Texas offered Toyota $40 million to move, part of a Texas Enterprise Fund incentive program run out of the governor's office. At $10,000 a job, it was one of the largest incentives handed out in the decade-old program and cost more per job created than any other large award. Last year, Texas spent about $6,800 to lure each of 1,700 Chevron (CVX) positions to Houston and $5,800 for each of 3,600 Apple (AAPL) jobs shifted to Austin.
"It is the biggest win we've had in a decade," Perry said in an interview. "Ten years of tax, regulatory, legal and educational policies have now put Texas at the top of the heap."
California Gov. Jerry Brown didn't address the Toyota decision specifically but took note of criticism directed at the state. "We've got a few problems, we have lots of little burdens and regulations and taxes, but smart people figure out how to make it" in the state, he said at an event in Lancaster, Calif., with Chinese electric-vehicle maker BYD Co.
In response to Toyota's relocation, the state's economic development office said "dozens of businesses big and small," including auto makers, have expanded in the state.
The reorganization is part of a larger effort by Toyota to cut costs and run its North American business as a cohesive operation. Until last year, its manufacturing, sales and marketing, and research and engineering were distinct units with their own headquarters and top executives.
Toyota's U.S. sales unit has been based in Southern California since 1957. The auto maker has expanded its operations in the area to include product planning, vehicle design, consumer finance and logistics. The auto maker also has a small manufacturing operation in Long Beach, Calif. Toyota's design studio and several other small functions will remain in California, keeping its total workforce at 2,300.
"I don't think it is a big secret that outside of the IT and entertainment industry, that California is too much of an overregulated, high-cost place of doing business," said Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor. "But it's not just about insulting California. [Toyota] had too many different organizations operating at the same time not operating as the same entity."
Executives will start moving from Toyota's sales center in Torrance and its manufacturing offices in Erlanger as soon as July to leased properties in the Dallas suburb while a facility is constructed. The bulk of the transfers won't take place until the new headquarters is finished around the end of 2016 or early 2017. Toyota said its financial services operations will move to Plano in 2017.
In all, about 3,000 workers from California and 1,000 from Kentucky will transfer to Texas. Some 250 purchasing employees will be shifted to Michigan from Kentucky. Employees from the company's corporate office in New York also will move to Texas.
A challenge for Toyota will be avoiding a brain drain. Nissan retained just 32 percent of its workforce when it relocated from the Los Angeles area to Franklin, Tenn., outside Nashville. Many more employees returned to California after a few years, said Larry Dominique, who was Nissan's chief of U.S. product planning at the time and now is president of Automotive Lease Guide.
"When you lose centuries of institutional knowledge, that can have a negative impact on the overall brand," he said. "The positive side is that you can shave off the old [and] bring in new talent and thinking."
Toyota's Lentz said the company is determined to retain current employees. The company is offering company-paid trips to Texas or Michigan, and relocation packages to anyone who wants to move.
—Russell Gold and Alejandro Lazo contributed to this article.
I spent most of my working life in the northeast. People go where the jobs are, whatever the weather. Then there are the lower taxes, lower real estate costs, lower overall cost of living, etc.
I'd say that many of the employees currently in California who will be asked to move to Texas will be more than willing to go.
Have you noticed that once a state becomes a highly regulated and taxed liberal state, they all want to flee to Red states to escape all the B.S. Then they turn around and screw that up and turn that state Blue. I lived in Colorado for 20 years, and that's exactly what happened there, so I moved out.. Good luck Texas!
"""California Gov. Jerry Brown didn't address the Toyota decision specifically but took note of criticism directed at the state. "We've got a few problems, we have lots of little burdens and regulations and taxes, but smart people figure out how to make it"""
all about choices. bad business environment, verses really great weather.
have you BEEN to Texas'?????
California has had plenty of time to "see the light", but the idiots in Cal. government are too busy plundering the state before it caves in to notice.
California has probably the worst business climate in the US. With high taxes, endless restraints and ordinances, local meddling, and a severe lack of quality workers, they make it nearly impossible for any business to survive, let alone thrive in the state. The cost of living is almost as bad as New York City, and that's for the whole state. It's no wonder every successful business is leaving the state.
I hope the last guy out remembers to turn off the lights.
specifically that Toyota location in torrance is worth MILLIONS as plane old housing real estate. and it's not THAT big a complex.
Toyota scores by lowering operating costs, and selling the buildings.
as stated though, how many people will want to move from california to texas? certainly not if they have other choices to simply stay in a state with much better weather.
senior people - the ones the brain drain will really hate to see leave - could likely sell their California house and buy ANYwhere in USA and retire right away. or take any Toyota offers and move at their expense and quietly plan their retirement in say 3 years (if they have a mover-reimbursement clause).
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