Let's Not Paint the Toyota Move to Texas Too Much as A Drive For Free Markets

I totally understand why Toyota would want to leave California.   I often wonder why any manufacturing business would remain in California.  I actually have thought about whether there is a private equity opportunity to buy California manufacturers and make money by moving them to lower cost jurisdictions.

I am particularly sympathetic this year.  We have four or five campground opportunities where we could be making money this year by making investments in these facilities.  But these initiatives would all take my time, and my time has been 110% devoted to catching up on regulatory compliance issues, particularly in California.   Every state has stupid compliance requirements, but California stands out for two reasons

  1. It has a lot, lot more of these requirements
  2. The cost of non-compliance is way higher than in other states.  You don't just get an order to clean up your act in 60 days, you get slammed with tens of thousands of dollars of legal fees from predatory law firms that have been given a hunting license by the state legislature to seek out and reward themselves when they find non-compliance minutia (e.g. numbers on the paycheck in the wrong font size).

So  I totally understand why Toyota is coming to Texas.  But also note that the state of Texas handed Toyota tens of millions of dollars in taxpayer money for the move, money for which smaller and less politically-connected companies don't qualify.  This corporate relocation incentive game is one of the worst uses of tax money, as it produces no new economic activity, but simply shifts it across arbitrary lines on the map.

  • Bram

    The state giveaways to Toyota were the icing on the cake. It was costs and regulations that made Toyota move.

    While I don't like the giveaways, I doubt the Texas credits even cover Toyota's moving costs.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Toyota isn’t the only large company leaving or downsizing its footprint in CA.

  • DMav

    An industry insider indicated that a huge side benefit ( or possibly base reason) was the fact that they would be able to restructure a top heavy and bloated marketing hierarchy. Not too many of the large SoCal staff, with significant seniority, would be interested in relocating to Texas. Toyota gets logistical advantages by being closer to their manufacturing facilities, and an improved cost structure, in addition to the better business environment. The state incentives are a small piece of the equation.

  • obloodyhell

    Not to suggest a full-on disagreement with your thesis, but I'll allow for such things because it helps overcome "movement inertia" -- all the folderol that surrounds ANY move, which is substantially compounded the more "stuff" (i.e., directly correlated with the size of your company) you have to move, too.

    The smaller company lacks that inertia, or has far less of it, and so is more inclined to do it simply for benefits provided by the business environment.

  • obloodyhell

    Agreed. I think, for a company the size of Toyota, they're just a kick in the seat of the pants: "MOVE, ya big lummox!!" :-D

  • Corky Boyd

    Much of the $40 million from the state of Texas is for relocation allowances for the 3 to 4,000 or so employees bring encouraged to move. It is likely to include guarantees for homes that must be sold -- normally at fair market value, house hunting trips and temporary housing at a decent motel. This is standard practice for a company of that size. It represents roughly $10,000 to $13,000 per moved employee. From what I have observed, that's not at the high end of the scale.

  • rst1317

    It doesn't look like Toyota is moving all it's groups to Plano. And as you probably have caught, they're also "leaving" Kentucky.

  • jess1

    Ahem:
    Toyota's chief executive for North America, Jim Lentz, said Perry had no role in Toyota's decision to move.
    Perry "is an interesting guy," Lentz said in an interview. "I've never met him. I talked to him on the phone today for the first time. This was never about Governor Perry courting us."

    The company never gave California a chance to make a counter-offer, Lentz said, adding that it weighed as many as 100 possible sites over the past year.
    "California didn't work out for a number of reasons, especially the distance from our U.S. manufacturing operations,"
    he said. It would have been "disingenuous" to seek an alternative proposal from California.
    When it came time to decide on the site from the four finalists, Plano "was clearly No. 1," Lentz said, but not because of the incentives it offered the company.

  • rst1317

    If it's costs + regulations that are driving the move, why are they moving KY based employees to Plano, too?

  • rst1317

    Is Boeing the only one doing the opposite?

  • Milo Minderbinder

    Well then Texas is a horrible negotiator, giving more stuff away when they could have already closed the deal

  • rst1317

    If taxes, regs and costs are the issue, why isn't Toyota closing their big technical center near Ann Arbor? Texas fairs twice as well as Michigan for those.

    http://freedominthe50states.org/

  • Seekingfactsforsanity

    Definitely a move to a "more business friendly market".

  • Elam Bend

    Please tell us that you're joking about the font size on the the check thing.

  • Billy Ruffn

    Arbitrary lines? Those lines mark the boundary of sovereign states, don't they?

  • Mel Dawn

    Yep, seriously considering now after checking out some house prices in the area. Especially love breakfast tacos and the heat. ~Replace breaker box heath dallas