Autos

Goodbye, California: Texas Tempts Toyota With Low Taxes

Toyota U S A Headquarters exteriors, Torrance, Ca.

In order to help expand its margins and save money on its U.S. unit, Toyota is reportedly exploring a move of its headquarters from Torrence, California, to an area outside of Plano, Texas, Bloomberg reports, citing anonymous sources. The publication said that employees at Toyota’s headquarters would be notified on Monday.

“It would be very consequential for Southern California,” Jack Nerad, an executive market analyst for Kelley Blue Book, told Bloomberg. “There might be some brain drain and tumult for employees, though it should be largely seamless to the consumer. This kind of thing can create some disruption of momentum.”

California not only represents the largest auto market in the U.S., but also the country’s largest appetite for Toyota’s Prius hybrid, which has led the market with a 22 percent market share in the past two years. However, it’s a big win for Texas and Gov. Rick Perry, as the state has actively mounted efforts to convince companies to move to the Lone Star State, citing lower taxes and more relaxed regulations.

The move would be quite an undertaking for Toyota, given that it employs 5,300 Californians across its sales, finance, marketing, engineering, and product planning divisions. Bloomberg points out that when Nissan (NSANY.PK) moved its North American headquarters to Tennessee in 2006, also for cost reasons, only 42 percent of employees initially chose to relocate with the company. Assuming a similar figure for Toyota, it would mean hiring more than 3,000 new people once the move is complete.

2014ToyotaTundra

Toyota already operates a plant in San Antonio, where it produces the Tundra and Tacoma pickups. The news comes as Toyota is shooting for record profits of 1.87 trillion yen ($18.3 billion) in net income, and breach the 10 million-vehicle mark for the year — which would make for the first time any automaker has surpassed that threshold.

However, since its initial income projections, Toyota agreed to pay a $1.2 billion fine over the fallout of its unintended acceleration issue a few years ago. Therefore, the company is looking to pad its margins wherever possible. According to Bloomberg, such a move could take as long as two years.

Toyota’s sales last year reached 2.24 million cars and light trucks in the U.S., down from the company’s record of 2.62 million in 2007. Combined sales for the carmaker’s three brands — including Lexus and Scion — fell 1.6 percent to 520,997 in the year’s first three months, Bloomberg said.