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COMMENT: Toyota's Texan transition tense?

By Graeme Roberts | 29 April 2014

Toyota North America CEO Jim Lentz: "With our major North American business affiliates and leaders together in one location for the first time, we will be better equipped to speed decision making, share best practices, and leverage the combined strength of our employees."

Toyota North America CEO Jim Lentz: "With our major North American business affiliates and leaders together in one location for the first time, we will be better equipped to speed decision making, share best practices, and leverage the combined strength of our employees."

The atmosphere at Toyota's US headquarters in Torrance, the engineering and manufacturing centre in Erlanger and an east coast office is hardly likely to be joyous following the relocation announcement yesterday. Many employees across the states are facing a stark choice to be made within three years: uproot your life in southern California, Kentucky or New York and shift to Michigan or Texas - or find a new job. There's no sugar coating it.

The move to Plano, about 20 miles north east of Dallas, from three current headquarters locations affects about 2,000 people at Toyota Motor Sales, USA (TMS) in California (Torrance is in Orange County just south of Los Angeles); about 1,000 at Toyota Motor Engineering & Manufacturing North America (TEMA) in Erlanger and some workers at Toyota Motor North America (TMA) in New York city.

Toyota said it would start the move with initial small groups this summer but most employees won't shift until construction of a new building in Plano is complete in late 2016 or early 2017.

Toyota Financial Services (TFS) will move to Plano from Torrance in 2017, affecting another 1,000 California workers.

Officially, Jim Lentz, a 30-years-plus Toyota US veteran who has climbed the corporate ladder to become the first non-Japanese head of the North America region - reporting only to Toyota Motor chairman Akio Toyoda - said: "With our major North American business affiliates and leaders together in one location for the first time, we will be better equipped to speed decision making, share best practices, and leverage the combined strength of our employees."

In an interview with Automotive News, he said Toyoda had demanded North American operations be "self-reliant" and the major restructure was Lentz's plan to achieve that.

"He wanted me to reflect on whether we are ready to be self-reliant and whether we are structured in such a way to take that responsibility. It became clear to me that, although the four-affiliate structure worked in the past, it was going to get into our way in the future. 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," he told Automotive News.

Long view

In my 30-year experience of Japanese automakers, they always take the long view and Lentz confirmed that, saying Toyoda had asked him to get the US unit ready for the next 50 years.

Nissan relocated its US headquarters from Gardena, also in the Los Angeles region, to Nashville, Tennessee in 2006 but Lentz insisted the reasons for Toyota's planned shift were different.

"As I look back on Nissan’s move, it was about reducing cost and headcount," he told Automotive News. Ours is really the exact opposite. Ours is about retaining associates, and not finding ways to get rid of them or replace them with cheaper headcount. We are not a cost-cutter place. We are a relationship place. Our relationship with our employees is critical if we want to have good relationships with our customers."

Lentz obviously expects some "attrition", people too grounded in southern California and other locations to move, but insisted the company would do everything it could to make the up-to-three-years transition period as easy as possible. Thing about going to Texas and the automaker will fund an expenses-paid trip for you and partner to have a look at Plano. Stay on and move to Texas and you'll get a retention package and help with relocation costs. Stay with TMS till the move and quit to remain in California and you'll still get a retention package.

Lentz insisted the restructure and relocation wasn't a sneaky way to cull middle management, resulting in lower costs for relocation versus a workforce reduction plan. There won't be early retirement offers or a "targeted reduction percentage", he said.

Reaction

Jack Nerad, executive editorial director and senior analyst for Kelley Blue Book’s KBB.com said: "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 of large corporations.

"While the dollar savings from the relocation should be fairly easy to quantify, what is much harder to quantify is the cost in business disruption and 'brain-drain' that such a move can cause.  You can bet a lot of folks at Toyota’s headquarters right now are trying to keep their eyes on the business ball, while at the same time their personal lives have just received a sizable jolt.”

Senior analyst Karl Brauer added: "Toyota’s relocation from Southern California to Texas is part of a larger, ongoing trend driven by the high cost of doing business in this state.

"Everything from corporate tax structures to the cost of living is more desirable in states like Arizona, Nevada and Texas, and the ongoing migration of businesses out of California reflects it. When Nissan left in 2006 it caught many in the industry by surprise, but at this point I’m wondering if we’ll see similar moves by Honda, Hyundai and Kia. Even Tesla, which launched in Silicon Valley and is preparing for a multi-billion dollar investment in battery production, is targeting multiple locations outside its home state of California.

"This is a great example of short- versus long-term thinking, in this instance California state officials are collecting more tax dollars today, while creating a small tax base for tomorrow."

According to the Los Angeles Times, some observers and California officials used the announcement to criticise what they claimed was California's business climate for high taxes and onerous regulations.

Surprise

The announcement certainly surprised Toyota workers.

"There's a lot of shock," an anonymous employee told the paper. "They did a good job of keeping it secret.... My boss, a national manager, didn't even know." The Southern California native and 23-year Toyota veteran was unsure if he would move to Texas. "People aren't angry," he said. "It's just a lot of sadness."

California officials were similarly taken off guard, the LA Times said. Toyota executives waited until Friday to tell state governor Jerry Brown's administration of the planned exit, an official said. A Los Angeles county official with responsibility for Torrance said he was "...very shocked. Toyota is such a great corporate citizen." He added state and local officials should conduct an "exit interview" with Toyota, to ask how California can better avoid "being a target for every other state."

Winners, losers

Inevitably, there will be winners and losers. Having more people in single locations - manufacturing administration, sales, marketing, advertising, public and media relations plus corporate operations in Plano; direct procurement together with the Toyota Technical Center (TTC) in Michigan - should make Toyota operations in the US more efficient and hopefully reduce the need for multi-million unit recalls such as the 'unintended acceleration' debacle of a few years ago or the one of almost 7m cars worldwide announced earlier this month.

Employees who leave the automaker face finding new jobs in a still tough US economy while affected cities and states lose the taxes and other fiscal contributions thousands of workers make.

On the other hand, state and local authorities - and realtors - in Texas must be salivating at the opportunities of the next few years. A large, purpose-built headquarters campus will employ many building and maintaining it. An influx of thousands of workers will all need housing. Up go real estate prices. But not to California levels, so workers making the move will find they get more for their money. And then there's the extra tax take, all the extra business for local firms supplying the needs of a big new employer.

And I hear Texas barbecue is excellent.