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What Drove Toyota From California to Texas?

Automaker Likely Weighed Multiple Factors In Choosing the Legacy West Development In Plano In Decision to Move HQ From CA's 'Land of the Prius' to Texas's 'Land of the Tundra'
April 30, 2014
Amid all the talk over low taxes and business-friendly regulations, in the end, it may have been the buying habits of male Texas pickup truck owners that helped sway the decision to relocate Toyota's North American manufacturing, sales and marketing headquarters from Torrance in Southern California to Plano, TX.

Texas Gov. Rick Perry's office said Toyota cited a number of factors in choosing the North Dallas suburb for the new headquarters, including Texas's "low taxes, smart regulations, fair courts and skilled workforce," in addition to the $40 million offered through the Texas Enterprise Fund (TEF) funded by Texas taxpayers, which provides incentives for companies to create jobs in the state.

Other observers attributed the corporate relocation to California's higher-cost business environment and cost of living. Understandably, California Democrat Al Muratsuchi, who represents Torrance, CA, in the state Assembly, isn't buying that.

"Toyota representatives have personally informed me that this is strictly a business decision that has nothing to do with California's business climate." Muratsuchi said. "This is a nationwide corporate decision to consolidate their operations in one location."

Toyota has selected Legacy West, the 240-acre project at the Dallas North Tollway and State Highway 121 under development by a partnership of The Karahan Companies, KDC and Columbus Realty, as the site of the project, representatives for Karahan and KDC confirmed Wednesday.

The automaker will build the North American headquarters on more than 70 acres under contract for sale in the northwest quadrant of Legacy and Headquarters Drive near the future headquarters of FedEx Office, developer Fehmi Karahan tells CoStar News. Karahan adds that Toyota’s participation may increase the already hefty $2 billion value of the project.

While talks proceeded very rapidly over the last three months, the Legacy team did not initially know Toyota was the company circling Plano.

"Certainly, we did know a very reputable group of brokers from JLL was representing them, and it was a very important client of theirs we can trust," Karahan said. "They did share that it was a very large global company, and that we would be very pleased.

“We knew it was a Fortune Global 100 company, but it turned out to be Global 8," he said.

"There is an urgency to break ground as soon as possible," with the goal of choosing an architect, setting a development team in place and begin construction before the end of this year, Karahan added.

In February, JCPenney selected the Legacy team to develop the vacant land around its Plano headquarters in Legacy Business Park. JCPenney acquired the land in 1987 shortly before moving its headquarters to Texas from New York City.

Jim Lentz, who last year was named Toyota’s first CEO for the North America region, called the relocation "the most significant change we’ve made to our North American operations in the past 50 years." Lentz told news outlets that Gov. Perry and Texas did not "court" the automaker.

However, auto industry analyst James Rubenstein said moving its marketing operations to Texas, where Toyota already makes trucks at a plant in San Antonio, will help the company better understand the mindset of male truck buyers. Rubenstein said geography and demographics prevailed over government attitudes toward business.

Denver, Atlanta and Charlotte, N.C. were also reportedly on the short-list as possible locations in the search headed by Jones Lang LaSalle, according to the Wall Street Journal.

Toyota will move its North Amercian headquarters to Plano within the next three years. Combined, the Japanese automaker’s decision to consolidate the three separate North American divisions along with corporate and corporate operations into a single campus in Plano, TX, will affect 4,000 employees, including 2,000 workers at Toyota Motor Sales, U.S.A., Inc. in Torrance; about 1,000 employees at Toyota Motor Engineering & Manufacturing North America, Inc. (TEMA) in Erlanger, KY; and certain employees at Toyota Motor North America (TMA) in New York City.

Toyota's Torrance operations include at least six major office and warehouse buildings covering more than 100 acres along South Western Avenue and West 190th Street in the South Bay area of Los Angeles County, according to CoStar information.

Perry, who has waged rhetorical battle for more than a year with his California governor counterpart Jerry Brown over the Lone Star State's efforts to attract businesses from the Golden State, hailed the $300 million capital investment in Plano.

"Over the past decade, Texas and Toyota have developed a strong partnership that has resulted in good-paying jobs for thousands of Texans," Perry said in a statement.

To date, the Texas TEF has spent more than $558 million in attracting projects generating nearly 74,500 new jobs and more than $24 billion in capital investment. Toyota’s Texas operations already include its $2.3 billion manufacturing facility in San Antonio with 2,900 jobs. Combined with its 21 on-site suppliers, Toyota supports 6,000 jobs in San Antonio.

Toyota will expand its Toyota Technical Center (TTC) in Michigan to accommodate the relocation of direct procurement from Erlanger, KY, to its campus in York Township near Ann Arbor. The automaker called the expansion "part of an increased investment in engineering capabilities and will accommodate future growth in product development."

The majority of the employees won’t move until construction of Toyota’s new Texas headquarters is completed in late 2016 or early 2017. The 1,000 employees of Toyota Financial Services (TFS) aren’t expected to make the move from Torrance until 2017.

Torrance "will aggressively try to remarket that property and get another major manufacturer in there," Mayor Scotto said.

Toyota’s 10 U.S. manufacturing plants won't be impacted by the changes. Toyota will continue to have about 2,300 employees in California and 8,200 employees in Kentucky, including 750 new jobs being added for production of the Lexus ES, which begins in 2015. The company will also continue to maintain offices in the New York City area and Washington, D.C.

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