By now it is old news that Toyota is moving its U.S. headquarters (its largest sales market) to Plano, TX from Torrance, CA. Certainly the high tax, anti-business environment cultivated aggressively for decades in CA influenced Toyota’s move. Toyota started with one hundred potential locations before shrinking that list to four other choices besides the north Dallas suburb that also hosts Frito-Lay. But other factors in play are the corresponding equivalent of Lowest Total Cost of Ownership (TCO).The TCO philosophy places paramount emphasis on facts as expressed by “Dollars and Numbers” ($’s & #’s). Business decisions must rely almost exclusively on facts; these are measured by ($’s & #’s).
Thousands of jobs, millions in payroll, and billions in economic boost
Toyota is relocating thousands of employees who will generate a large economic bonanza to an already vibrant business environment in north Texas. Although Toyota did not publicly disclose the competitors for its new headquarters, a request from the Associated Press for public records found that the Tarheel state had offered more than $100 million in incentives to lure the world’s largest automaker to the Charlotte area.
NC felt compelled to more than double the offer of the Lone Star state as Texas has no corporate or personal income tax. NC Commerce Secretary Sharon Decker, noted that relocating companies compare the total cost of a new site along with financial incentives. Mike Michels, A Toyota spokesman said, “Incentives were just one of the many consideration.” They also factored in transportation, cost of living, educational opportunities, and geography. Toyota has production plants in San Antonio, Kentucky, Mississippi, and Indiana, all within or near the Central Time zone.
DFW International Airport
The availability of direct flights between the U.S. was a crucial factor as executives fly between HQ and Japan hundreds of times per year. Charlotte Douglas International Airport is much smaller, has no direct flights to Japan, and is on the east coast, remote from Toyota’s operations in the U.S. DFW has direct flights to Japan.
Gov. Rick Perry’s office said that it offered Toyota about $40 million in incentives and the City of Plano kicked in another $6.75 million. At less than half of NCs offer, it was not about the price; it was all about the cost!
NC learned this lesson even though it probably never had a realistic chance. Personnel relocation and severance costs are a large expense for relocating companies. Adding the other costs into consideration, and the Lowest TCO choice was obvious. According to Jim Lentz Toyota’s CEO for North America, “…the Dallas metro area was far an above the best choice.”
Moral of the story
Many suppliers who deal with Toyota, or Wal-Mart , or Boeing, et al, understand that while it might appear that these organizations have a price fixation. It is really always about costs. It is economically axiomatic that the lower the cost, the more prices can be reduced.
Wouldn’t it be wise to emulate this successful business model?