Not so long ago, Texas lived on the outskirts of the auto industry, a dusty outpost with two factories and giant ambitions.
Toyota changed that overnight, transforming Texas with a surprising announcement late last month that it would move its U.S. headquarters from Southern California to Plano, along with 4,000 people.
It gave the state instant credibility in the car world, industry experts say – and at an opportune time.
As Mexico continues to crank out record numbers of vehicles for the U.S., automakers may see Texas as the ideal place for the divisions or offices that oversee that rising production.
“This puts Texas in a whole different light, and with all the new plants going into Mexico, everyone will be watching Toyota’s transition,” said Larry Dominique, an executive vice president at TrueCar.com who worked in the auto industry for 28 years.
“Toyota put Texas on the industry map,” said George Hoffer, a business professor at the University of Richmond who follows the auto industry closely.
Auto manufacturing has been drifting south for decades, attracted by lower costs and nonunion workforces in Kentucky, Tennessee, South Carolina and Mississippi. That surge has now pushed deeply into Mexico, where even lower-paid workers – about $3 an hour – consistently turn out quality cars and trucks for the U.S.
Ford builds Fiesta subcompacts there, and GM factories roll out new Silverado pickups. Workers at one Chrysler factory in Mexico assemble Hemi V-8 engines; another factory produces Ram pickups.
Nissan, Mazda and Volkswagen, among others, also operate plants there.
“I think the industry has been shifting south for a long time,” said Bruce Belzowski, director of automotive analysis at the University of Michigan Transportation Research Institute. “This Toyota move is just kind of piling on.”
Plants in Mexico build about 3 million of the 15 million new vehicles sold annually in the U.S., and their production is expected to increase 38 percent by 2016, according to industry figures.
“With what is going on in Mexico, Texas could arguably become the center for the white-collar auto industry,” Hoffer said.
Although Toyota’s presence in Mexico is relatively small, the company wants to increase production there.
“I was a little surprised that Toyota chose Dallas,” Belzowski said. “But when you bring Mexico into it, it starts to make more sense. Texas is right there in the middle between the factories in Mexico and the markets where a lot of those cars and trucks are headed.”
Moreover, land in Texas for a new office is considerably less expensive than property in California, which also borders Mexico.
“As companies continue to whittle down their costs, a lot of people who were not willing to seriously consider Texas may look at Toyota’s decision and reconsider,” said Frank Anderson, who teaches finance at the University of Texas-Dallas.
First, though, Toyota must make a smooth transition to Plano – a two-year process that many in the auto industry will be watching closely.
“Toyota is a very successful, forward-looking company, and I’m sure other automobile companies will want to see how all of this goes,” said Dale Petroskey, president and CEO of the Dallas Regional Chamber, which promoted the area to Toyota and helped facilitate its decision.
In moving to Plano, Toyota says it mainly wants to consolidate all of its sales, marketing, finance and manufacturing divisions on one 70-acre campus.
But there will be hurdles to clear.
When Nissan moved its headquarters from Southern California to Franklin, Tenn., in 2006, only 42 percent of its workers chose to go.
That meant Nissan had to quickly find hundreds of new employees in the Nashville area with backgrounds in sales, marketing and finance, as well as for more specialized jobs such as product planning, said Dominique, who was product planning at Nissan at the time.
“It was a real challenge,” he said. “We ended up finally turning to Detroit and offering jobs to people who worked in the industry there.”
Although North Texas is home to the GM Arlington plant, which employs engineers and other professionals as well as thousands of autoworkers, it doesn’t have a deep automotive base.
But the area is home to large numbers of white-collar workers, and Toyota might need hundreds of them.
The company has declined to speculate about how many employees are expected to make the move to Plano.
But Dominique figures Toyota will lose between one-third and half of the 3,000 people who currently work in California. (The other 1,000 will come mostly from manufacturing offices in Kentucky.)
“What is significant about this relocation is it is bringing lots of executive and professional-level jobs – possible opportunities for middle-class workers,” said Anderson of UT-Dallas.
The Dallas area could probably provide 50 percent to 60 percent of the people Toyota might need, said Dominique, who got to know the area while at Nissan. (Dallas was a finalist for the Nissan move in 2006.)
If North Texas can satisfy Toyota’s needs and continue to expand its white-collar base, it would lure other automakers looking south.
“When the domestic auto industry collapsed five or six years ago, they got rid of people and plants and retreated back into the old auto-industry world in the Midwest,” Hoffer said. “The less-traditional imports are moving around and looking to locate offices closer to their centers of manufacturing.
“They’re the ones creating opportunities,” he said.
AP Photo/Koji Sasahara
Visitors inspect a car at a Toyota gallery in Tokyo on Thursday, May 8, 2014. Toyota’s fourth-quarter profit dropped slightly, despite higher vehicle sales and a weak yen, as it spent more on research and development. Toyota Motor Corp. reported a January-March profit of 297 billion yen ($2.9 billion), down from 313.9 billion yen a year earlier. Quarterly sales rose 12.5 percent to 6.57 trillion yen ($64.5 billion).