It’s Not About Incentives: Toyota’s Texas Move Is A Corporate-Culture Gambit – Forbes
Texas promised Toyota $40 million, or about $10,000 for each of the 4,000 jobs expected as the company moves its North American headquarters to North Texas from Southern California over the next three years. That’s more than the state’s Texas Enterprise Fund spent last year for each of 1,700 Chevron Chevron jobs in Houston and 3,600 Apple Apple jobs in Austin.
But the incentives were relative chump change in the overall calculus that led to Toyota’s announcement of the move move this week. Far more important were the plans for corporate consolidation of the company’s diverse functions in the United States, as a major component of the cultural change hatched by North American CEO Jim Lentz over the last couple of years — and his determination that such deep transformation couldn’t be accomplished in California.
“I wanted to get sales, manufacturing and corporate operations in one location to be more efficient, and to put more resources against engineering and design,” Lentz told Automotive News. “If I can have supply and demand sitting next to each other, with information in real time, and collaborating with each other, that makes us a stronger player.”
Indeed, Toyota has been a heavily “siloed” company for a long time. Top executives have been discussing for years the need to remedy that problem as the U.S. market became both more important to Toyota, and more competitive. The 2010 safety-recall fiasco and 2011 earthquake and tsunami scrambled planning for that eventuality.
But when Toyota CEO Akio Toyoda appointed the company’s American veteran, Lentz, to a new position as North American CEO in 2013, this became one of his top priorities, sources said. And Lentz determined early on that Toyota couldn’t do what it needed to do on this score in either Southern California or in Northern Kentucky, near Cincinnati, where North American manufacturing operations were headquartered.
So the massive Toyota operation came into economic-development play. Denver, Atlanta and Charlotte, N.C., reportedly were finalists in addition to the Dallas-Ft. Worth area, out of 100 cities initially considered.
There’s a lot for any state to like in landing Toyota’s headquarters. The average salaries for the 4,000 jobs in Plano will be in the six figures, sources said, far more than manufacturing wages — meaning that Toyota’s Texas employees will have plenty of income to spread around.
That’s not to mention the obvious prestige of landing Japan’s largest automaker and the knock-on benefits to Texas of continuing to emerge as a new geographic powerhouse as the U.S. auto industry restructures. There are existing Toyota and General Motors truck plants in the state.
Texas also is the main gateway to the United States and Canada for a quickly growing automotive-manufacturing industry in Mexico, where the increasingly favorable labor-cost picture versus China is attracting car makers from all over the world. Mexico has broken ground on a handful of new auto plants in the last several years.
One more thing: Texas remains the reputed frontrunner for landing the giant Tesla “gigafactory” that promises to be a multi-billion-dollar boon for whichever of four states — also including Nevada, New Mexico and Arizona — manages to land Elon Musk’s dream fabrication and research facility.
So, sure, Texas wasn’t going to be caught offering Toyota nothing. But the financial incentives were only a sweetener. By contrast, in 2005 Tennessee offered state and local incentives totaling about $182 million to Nissan when it established its new North American headquarters there, involving white-collar jobs mostly similar to those that Toyota is bringing to Texas, according to the Center for Automotive Research in Ann Arbor, Mich. That came out to about $140,000 in incentives for each of the 1,300 jobs Nissan promised.
In the recent controversy over the United Auto Workers’ attempts to unionize the Volkswagen plant in Tennessee, it became public that state and local officials were offering the company about $300 million in new incentives if VW would add another assembly line at the plant to build a new SUV in addition to the Passat sedan now built there. With about 2,000 employees expected to be added to do that work, such incentives would work out to about $150,000 per promised worker.
For Toyota, the $40 million in state incentives presumably isn’t the whole of what Texas offered; Plano’s city council is scheduled to vote soon on its package of additional incentives, presumably including property-tax abatement related to the site of Toyota’s planned campus there. But Toyota likely could have gotten more in financial incentives from other cities.
It isn’t surprising to some corporate-location consultants, in fact, that Toyota might have left a lot on the table in financial incentives. “Many companies from Asia tend to be a little bit more careful on the incentive side in terms of how they’re viewed when they go into an area,” said Larry Gigerich, managing director of Ginovus, an Indianapolis-based consultant. “Culturally, they’re often very focused on making sure they don’t look like they’re taking every dollar available, and on doing things to help their new community as well.”
So from the start, cash wasn’t the main game for Toyota in deciding to leave southern California, or deciding to land in Texas.
The appeal of setting up a new shop in the logistical heart of North America and much closer to all of Toyota’s manufacturing operations was obviously a huge lure.
So was the chance for lower corporate operating costs across the board. “The business climate in Texas is very good overall, but particularly for large corporations,” Gigerich said. “That’s a tremendous positive. There will be enormous savings for Toyota right off the bat.”