TORRANCE, Calif. - Toyota is moving its U.S. headquarters from California to Texas to get closer to its Midwest assembly plants and improve communication between units now spread over several states.
Toyota will break ground this year on a new environmentally friendly headquarters in Plano, Texas, about 25 miles north of Dallas. Small groups of employees will start moving to temporary office space there this year, but most will not move until late 2016 or early 2017 when a new headquarters is completed.
The new campus will bring together approximately 4,000 employees from sales, marketing, engineering, manufacturing and finance. That includes 2,000 employees at the current headquarters in Torrance, Calif.; 1,000 employees at Toyota Financial Services, which is also in California; and 1,000 employees from Toyota's engineering and manufacturing center in Erlanger, Ky.
Toyota also plans to expand its technical center near Ann Arbor, Mich., and move approximately 250 parts procurement positions there from Georgetown, Ky., where the Camry and Avalon sedans are made. That will free up space for approximately 300 production engineers to move from Erlanger to Georgetown.
Jim Lentz, Toyota's CEO for North America, said the new headquarters will enable faster decision making. It's one of the most significant changes in Toyota's 57-year history in the U.S., Lentz told The Associated Press.
"We needed to be much more collaborative," Lentz said.
Larry Dominique, the president of ALG, an automotive consulting and forecasting firm, said Texas is a cheaper place to do business than California, which has higher corporate taxes and more onerous work rules like paid family leave. But he said Toyota could be hurt by a brain drain if employees choose not to go.
Dominique, a former executive with fellow Japanese automaker Nissan Motor Co., said Nissan lost 68 percent of its workforce when it moved from California to Tennessee in 2008. The disruption can also cause the company to lose momentum, Dominique said.
"Some people believe that with a big cultural shift like that, you shake up the tree, bring in new blood," he said. "But the negative side to that is that you lose centuries of institutional knowledge, and that's so hard to get back. It takes you back four or five years."
Lentz said the cost of doing business in California wasn't a factor in Toyota's decision. Lentz, who became Toyota's first CEO for the North America region in 2013, said Toyota President Akio Toyoda encouraged him to think of ways to make North America more self-reliant. As part of that process, Lentz settled on the idea of a combined headquarters last April or May.
The company decided not to locate in California because it was too far from its plants in Kentucky, Indiana, Mississippi and San Antonio, Texas. Kentucky was rejected because Erlanger wasn't big enough, and Ann Arbor was rejected because it was too close to Detroit rivals like General Motors and Ford.
Lentz said the company ultimately came up with a list of 100 possibilities that it whittled down to four.
"As we visited those four primary locations, it became quite clear that the Dallas metro area was far and above the best choice," Lentz said. He wouldn't disclose the other three finalists.
Texas Gov. Rick Perry said the state offered Toyota $40 million in incentives from the taxpayer-funded Texas Enterprise Fund. Perry, who made two visits to California to lure Toyota, said Texas expects Toyota to invest $300 million in the new headquarters.
Kentucky Gov. Steve Beshear said his state would have welcomed an opportunity to discuss options with Toyota.
"Obviously, we are extremely disappointed by Toyota's decision," he said.
Torrance Mayor Frank Scotto, who was informed of the move Monday morning, also said he was "saddened."
"We thought it was going to be part of Toyota, not everything," Scotto said at a press conference. "They didn't mislead us; they just didn't answer the questions."
Toyota said it will donate $10 million to nonprofits and community organizations in California and Kentucky on top of any existing commitments. Those funds will be distributed over five years starting in 2017.
Lentz said Toyota expects to keep more employees than Nissan did because of a generous package of benefits for those who stay. Any employee who wants to move will be given a relocation package and retention bonus, he said. The company is also offering to send employees and their spouses or partners to look around the new locations.
"Any one of our associates that raises their hand, they will have a job at the new location," he said. "Everything we are doing is encouraging people to go."
Lentz told employees about the changes Monday morning in a large conference room in Torrance. The announcement was broadcast elsewhere. He said it should help that most employees will have two or three years to plan their moves.
"They understand the business decision. It's a little bit of a shock in the beginning to people. They're trying to understand, what does this mean for me, what does this mean for my job," he said. "We made it very clear to them that we want them to come along with us."
Lentz said he didn't yet know when he will move to Plano, but it could be later this year or early next year. Lentz said he only spends three to four days per month in his California office.
"My time is all over the place. Where I live doesn't make a whole lot of difference," he said.
Toyota will continue to have about 2,300 employees in California and 8,200 employees in Kentucky after the moves are complete. The company will also maintain offices in New York and Washington. Plants in Mississippi, Texas and Indiana aren't affected by the moves.
Toyota has had a presence in California since 1957, when it opened its first U.S. headquarters in a former Rambler dealership in Hollywood. The following year - Toyota's first in the U.S. market - it sold 287 Toyopet Crown sedans and one Land Cruiser.
By 1975, Toyota had become the top import brand in the U.S. It opened its current U.S. headquarters in Torrance in 1982.
Toyota sold 2.2 million cars and trucks in the U.S. last year.
Dominique said the placement of the headquarters probably won't have much impact on Toyota's sales in California, which is a critical market for the automaker. The Toyota Prius hybrid was the best-selling vehicle in California last year, and Toyota controlled 22 percent of California's new car market.
"From a consumer's point of view there won't be much change," he said.