Is Toyota’s Shift from California to Texas a Sign of More to Come?

There are all sorts of implications that can result from Toyota’s decision to pull up stakes in southern California and move its North American headquarters to northern Texas.

It could lead to an exodus by other California-based automakers. It will raise up Texas as a new center of the global auto industry and increase its overall attractiveness as a magnet for corporate relocation. The move will also underscore the importance of factors besides financial incentives as crucial determinants in the economic-development sweepstakes.

While Texas Gov. Rick Perry has been picking up some significant relocation conquests lately by poaching companies from California Gov. Jerry Brown, Toyota’s plans to move to Plano, Texas, over the next three years ranks as the most significant such loss yet for the Golden State, both in the number and quality of jobs—and symbolically.

“It is the biggest win we’ve had in a decade,” Perry told The Wall Street Journal. “Ten years of tax, regulatory, legal and educational policies have now put Texas at the top of the heap.”

Indeed, Texas is rapidly acquiring critical mass as a new geographic powerhouse as the U.S. auto industry restructures. There’s an existing Toyota assembly plant in San Antonio. And the state is the main gateway to the United States and Canada for a quickly growing automotive-manufacturing industry in Mexico. Plus, Texas remains the reputed frontrunner for landing the giant Tesla “gigafactory” over the other states in consideration: Nevada, New Mexico and Arizona.

Texas promised Toyota $40 million, or about $10,000 for each of the 4,000 jobs expected. That’s more than the Texas Enterprise Fund spent last year for each of 1,700 Chevron jobs in Houston and 3,600 Apple jobs in Austin.

Far more important, however, were Toyota’s plans for 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.”

Toyota’s bold move gives others such as Honda, Mazda, Hyundai and Kia more reason than ever to consider a similar strategy. Nissan led the parade of foreign brands out of California when it relocated its North American headquarters operations to Nashville in 2006. And Honda has relocated some of its management brain trust to Ohio, where the company has its largest concentration of U.S. manufacturing.

“When any major corporation is courted by another state, it’s very difficult to combat that,” said Frank Scotto, mayor of Torrance, Calif., where Toyota’s headquarters currently employs about 5,300 people. The facility will house only about 1,000 after the move in three years. “We don’t have the tools to keep major corporations here,” Scotto told the Los Angeles Times. “A company can easily see where it would benefit by relocating someplace else.”

Texas placed No. 1 in Chief Executive Magazine’s annual ranking of “Best States/Worst States” in 2013, while California has held down the spot at No. 50 (the 2014 rankings will be published May 8).

Additional reading:

Texas Is the Best State for Business 2013