Toyota’s Texas shift reignites debate over California business climate

04/29/2014 12:00 AM

04/30/2014 10:50 AM

Texas struck again Monday, luring Toyota Motor Corp.’s headquarters away from Torrance and forcing California officials to defend the state’s business climate anew.

The relocation, to take place over the next three years, will shift about 3,000 sales and finance jobs from Southern California to Plano, Texas, near Dallas. An estimated 2,300 jobs will remain in Torrance.

Auto industry analysts said Toyota’s move is at least partly driven by a desire to consolidate operations and get better insight into the buying habits of truck owners. Nonetheless, the automaker’s announcement reignited the debate over California’s business climate and the state’s not-so-civil war with Texas over jobs.

When Texas Gov. Rick Perry began courting California businesses more than a year ago, his effort was dismissed by California Gov. Jerry Brown as “barely a fart.” But Brown’s Office of Business and Economic Development was forced to respond to Toyota’s announcement Monday with a broad defense of the governor’s economic record.

“California has turned a $27 billion budget deficit into a surplus, our credit rating is rising and more than a million new jobs have been created since the recession,” said the office’s deputy director, Brook Taylor, in a note emailed to reporters. He said the governor’s “pro-job policies” have spurred expansions by such companies as Genentech and Amazon.com.

At an appearance Monday in Lancaster, where a Chinese manufacturer is building electric buses, Brown acknowledged the high cost of doing business in California but said it’s worth it. “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,” he said, according to the Wall Street Journal.

Perry, however, hailed the Toyota announcement as a tribute to his state’s “employer-friendly combination of low taxes, fair courts, smart regulations and world-class workforce.” Texas offered Toyota incentives totaling $40 million, according to a statement from Perry’s office.

Critics of the Brown administration said Toyota’s move is another indication that businesses are fed up with high taxes, strict regulation and other issues in California.

“I’m not surprised to see that it occurred, for all of the usual reasons,” said Joe Vranich, a corporate relocation consultant in Irvine. He said corporate clients often complain about “Sacramento’s propensity to tax business some more, some more and some more.”

Toyota is the latest in a series of California companies, large and small, relocating to Texas in recent years. The Sacramento area alone has lost a handful of corporate headquarters to Texas lately, including Folsom’s Waste Connections Inc. and two Roseville software companies, Daegis and Revionics. Waste Connections was outspoken in its criticism of California’s tax policies and other business-climate issues.

Texas and Perry have come under criticism in some quarters for their approach to regulation, particularly after a fertilizer plant explosion killed 15 people last year. In addition, Los Angeles economic consultant Chris Thornberg said California shouldn’t try to emulate low-cost, low-wage states.

Thornberg also argued that corporate relocation announcements are often blown out of proportion. Toyota’s move will cost Los Angeles County less than one-tenth of 1 percent of its jobs, said Thornberg, head of Beacon Economics.

Texas has one of the nation’s fastest-growing economies, with job growth of 2.7 percent in the past year, while California isn’t far behind at 2.2 percent. Both are adding jobs at a faster pace than the U.S. average of 1.7 percent.

Inside the auto industry, Toyota’s move from Torrance was seen as less about an inter-state rivalry and more about the Japanese automaker’s move to consolidate some of its U.S. operations. Jobs are also being transferred to Plano from New York City and Kentucky. Toyota’s chief executive for North America, Jim Lentz, told Reuters that he never spoke to Texas’ governor until Monday.

“This was never about Gov. Perry courting us,” he said.

Still, Toyota’s announcement is a blow to Southern California, which for decades has prided itself on being a kind of Detroit West, home to thousands of auto marketers, engineers and designers. Toyota was among the first to set up shop in Southern California more than 55 years ago.

“A company that’s been so Los Angeles-centric for so many years, it does come as a surprise,” said George Peterson of AutoPacific Inc., a marketing and consulting firm in Tustin.

Experts said Toyota, in effect, may have outgrown California. About 75 percent of the cars it sells in the United States are made in the United States, so it’s less important to maintain a beachhead near Southern California’s ports, Thornberg said.

And James Rubenstein, a geographer who studies trends in the U.S. auto industry, said Toyota has long been frustrated by its inability to sell more of its trucks to men. Moving its marketing people to Texas will help the company better understand the mindset of truck buyers, he said. Toyota already manufactures trucks at a plant in San Antonio.

“It’s not an indictment of the (government) policies in California,” said Rubenstein, a professor at Miami University in Ohio. “It’s the harsh geography.”

Toyota had already “conquered” the California market, and in order to increase sales it has to tap into different demographics, he said. “Toyota doesn’t really need to get in the minds of Californians.”

Toyota’s Prius was the single largest-selling model in California last year, according to the California New Car Dealers Association.

Two major Japanese automakers have now moved its U.S. headquarters out of Southern California. In late 2005, Nissan Motor Co. relocated from Gardena to Franklin, Tenn., with its CEO citing the lower cost of doing business as a key reason.

Toyota executives didn’t mention cost, but experts said Texas’ low-tax climate surely played a role in the decision.

“No income tax, much, much lower workers’ compensation fees, lower insurance fees probably, lower housing costs– all of these things add up,” said Peterson of AutoPacific.

The Toyota decision comes as California officials struggle to persuade Tesla Motors Inc. to build its new battery factory in the state. The electric car maker has listed Texas, Arizona, New Mexico and Nevada as the four finalists for the 6,500-employee factory, but has also agreed to discuss the project with California officials. Tesla has decided to open a much smaller parts factory in Lathrop.

Tesla’s main factory is in Fremont, at the site of the former NUMMI manufacturing plant. NUMMI was a joint venture between Toyota and General Motors.

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