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Toyota move to Texas is latest blow to Southern California

A Toyota logo is seen in a showroom at a Toyota dealership in Warsaw April 11, 2014. REUTERS/Kacper Pempel
A Toyota logo is seen in a showroom at a Toyota dealership in Warsaw April 11, 2014. REUTERS/Kacper Pempel

By Robin Respaut and Paul Lienert

NEW YORK/DETROIT (Reuters) - Toyota Motor Corp. <7203.T> said it will move its U.S. sales headquarters from southern California to suburban Dallas, delivering the latest blow to California in a fight for jobs with arch-rival Texas, whose Governor Rick Perry has been actively poaching businesses from the Golden State.

The relocation from Torrance, a Los Angeles-area city of about 150,000, will bring much of the Japanese automaker's U.S. operations under one roof in Plano, Texas, including sales, service, marketing, advertising and quality. Also moving to Texas will be some manufacturing staff now based in Erlanger, Kentucky, and corporate operations staff based in New York City.

Toyota is the largest employer in Torrance, accounting for more than 5 percent of all jobs in the city with 3,837 workers in 2013, according to the city's annual financial report. About 2,000 people from Toyota Motor Sales in Torrance will be affected by the move, and about 4,000 U.S. employees in all, the company said.

Toyota's move, which will take place in stages between this summer and the end of 2016, is the latest by a major employer to defect to the Lone Star State from California. Toyota has been in California since 1957, when it set up shop at a former Rambler dealership in Hollywood.

In February, Occidental Petroleum Corp. said it would move from Los Angeles to Houston. In 2009, power company Calpine Corp abandoned San Jose for Houston and in 2006 engineering company Fluor Corp. relocated to the Dallas area from Orange County.

TRAVEL TO TEXAS

It's "sad news," Torrance mayor Frank Scotto said at a press conference Monday. "Toyota has been an integral part of the city." He said his son-in-law works for Toyota, so he faces the prospect of having to travel to Texas to see his daughter and grandchildren.

Toyota's decision also means all three of the major Japanese carmakers will have exited the state where they first got their footholds in the United States. Nissan Motor Co <7201.T> in 2006 moved most of its operations from Gardena, California, to Franklin, Tennessee, outside Nashville. Last year, Honda Motor Co <7267.T> decided to move a number of executives from Torrance to Columbus, Ohio.

Perry has made luring businesses from other states a priority, making personal recruiting trips to sell what the Republican touts as a superior business climate, particularly lower taxes. California and New York State, both with Democratic governors, have been particular targets for the effort.

On a poaching trip to New York last week, Perry challenged New York Governor Andrew Cuomo to a debate over which of the two states has a better business climate. There are about 50 people working in Toyota's Manhattan office, and not all will be required to move.

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."

NEVER HAD A CHANCE

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.

"Our decision was not based on the dollar amount we received," but rather on a friendly overall business climate and certain advantages for Toyota employees, from affordable housing and shorter commutes to the absence in Texas of a personal income tax.

Those supposed quality of life advantages don't ensure success in a big corporate relocation, however.

Larry Dominique, a former Nissan executive, recalled how Nissan lost about two-thirds of its California employees in the move to suburban Nashville.

While some employees liked the lack of income tax in Tennessee, which was akin to "getting a 20-percent raise," Dominique said many others couldn't be persuaded to go. That included a sizeable number who were not their family's primary earners.

Culture change is another challenge likely to be on Toyota's horizon, said Dominique, who now heads an automotive research and consulting firm in Santa Barbara.

"You lose centuries of institutional knowledge," he said. "In some departments, like in planning or branding, you have to retrain people on who you are."

SUMMER MOVE

Some employees will begin to move this summer, though most won't until construction of a new headquarters in Texas is completed in late 2016 or early 2017, the company said.

Toyota has a truck assembly plant in San Antonio, Texas, as well as manufacturing and assembly plants in eight other states, including Kentucky, Indiana and Mississippi.

Meanwhile, the departure from Torrance will leave more than a gap in employment.

According to the city's Comprehensive Annual Financial Report, the company was also Torrance's third-highest property taxpayer, with a taxable assessed value of $473 million or over 2 percent of the city's total taxable assessed value last year. Toyota also paid the city $203,037 in water revenue.

Torrance had a $271.5 million budget in 2013 and about $121.5 million in long-term debt. In December 2012, credit rating agency Moody's downgraded Torrance to Aa2 from Aa1, citing a moderately weakened general fund compared to pre-recession levels, increasing pension payments and public safety costs.

The departure could also hurt efforts by Los Angeles to regain its footing in the job market. The region's unemployment rate stood at 8.1 percent in February, well above the national rate of 6.7 percent.

(Additional reporting by Tim Reid in Torrance. Writing by Dan Burns, editing by John Pickering)

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