Toyota riding into Texas as state becomes automobile manufacturing powerhouse

Dave Montgomery Austin correspondent

After bagging Toyota’s 4,000-employee North American headquarters and being picked as one of four states competing for a $5 billion Tesla “gigafactory,” Texas boosters are asserting the Lone Star State’s emergence as a major player in the American auto industry. Even before Toyota’s bombshell announcement April 28 that it was moving its corporate nerve-center from California to the Dallas-Fort Worth Metroplex, the second-largest state already ranked No. 6 for automotive manufacturing employment, with 476 automotive manufacturing firms employing 33,800-plus workers, according to a 2013 report from the governor’s office. At the 60-year-old General Motors plant in Arlington, a new SUV rolls off the assembly line every minute. Down the Interstate-35 corridor, Toyota workers build Tundra and Tacoma pickups in a 2,000-acre site in south San Antonio. In Denton, heavy-duty trucks roll out of a Peterbilt Motors plant, the county’s largest employer. And across Texas, shops and factories make components ranging from plastic emission detectors to tires and windshield wipers. “We are starting to reach the point where Texas is a center for the automotive industry,” says economist Ray Perryman, president of the Perryman Group in Waco. The Toyota coup, which has been hailed as one of the most significant corporate relocations in years, was a major victory for Gov. Rick Perry and could bolster his prospects for a second presidential run in 2016. A $40 million incentive from the governor’s Texas Enterprise Fund helped convince the world’s largest auto dealer to move its headquarters from Torrance, Calif., to Plano, just north of Dallas.

Tesla Perry also is at the center of efforts to convince electric car maker Tesla to make Texas the home for a battery factory expected to employ about 6,500. “The cachet of being able to say we put that manufacturing facility in our state is one that’s hard to pass up,” Perry recently told a Fox Business interviewer, pledging a “major effort” from Texas to land the factory. The California-based car manufacturer, co-founded by Elon Musk, announced Texas, Nevada, Arizona and New Mexico as the four competitors for the plant, which Tesla officials have dubbed “the gigafactory.” Reno, Nev., is thought to be the front-runner but San Antonio officials are also making a strong push with an incentive package valued at $800 million, according to the San Antonio Express-News. Tesla hopes to announce the site within the next two to three months after winnowing the field to two semi-finalists. The company plans to complete the 10-million-square-foot factory by 2017. “It’s the most significant economic development project in decades,” said John Boyd, president of the Boyd Company Inc. of Princeton, N.J., a site selection firm. “It’s not only huge, it’s cutting edge,” he added, citing “new technologies” expected to emerge from the project. Boyd also uses superlatives to describe Toyota’s move, calling it “the biggest headquarters coup for the Metroplex” since American Airlines moved to Fort Worth from New York City in 1979. The move, he said, will have a “tremendous impact” on the Metroplex economy by importing more than 4,000 highly paid corporate workers who will become new customers for services throughout the area. Plano Mayor Harry LaRosiliere said discussions with Toyota began in February and were conducted under a veil of secrecy. The small circle of Texas officials involved in the discussions referred to the potential deal only as “project one,” never mentioning Toyota by name. “With our major North American business affiliates and leaders together in one location for the first time, we will be better equipped to speed decision-making, share best practices and leverage the combined strength of our employees,” Jim Lentz, CEO of Toyota North America, said in a statement. Groundbreaking on the 70-acre headquarters complex is expected this summer, with Toyota planning to make the move in phases throughout late 2016 and early 2017, LaRosiliere told the Business Press. “It’ll have a tremendous multiplier effect,” said the mayor, predicting a boost for restaurants, construction, retail housing and other segments of the economy.

‘We’re going places’ Plano, a high-growth city of 260,000 people 19 miles from downtown Dallas, will be the epicenter of the economic growth. But potential rewards from the Toyota relocation are expected to spill out across North Texas, stoking an already vibrant automotive presence that includes the GM and Peterbilt plants, scores of suppliers, parts makers and distributors and hundreds of dealerships. “Whether they locate in Plano, Fort Worth, Arlington, Dallas, it continues to build the reputation of the North Texas region as a place corporations are increasingly coming to,” said Wes Jurey, president and CEO of the Arlington Chamber of Commerce. “So that in itself helps us sell our communities.” Jurey said that Metroplex leaders have already begun making a major effort to draw more and more suppliers to the region to complement the growing manufacturing presence throughout Texas. “Every time you get a major manufacturer of anything, every time you get to the top of the food chain, that one single company can be leveraged to attract the entire supply chain that supports the company,” he said. “The real opportunity becomes how much of the supply chain can we capture, build, recruit, grow in Texas. It’s certainly an area we’re focused on, and I think it’s an area of focus for Texas.” In North Texas, say Jurey and others, the opportunities encompass not only just commercial automobiles and trucks but an entire “mobility industry” that includes jet fighters made by Lockheed Martin, choppers made by Bell Helicopter Textron and locomotives made at the General Electric plant in Fort Worth – a genuine “planes, trains and automobiles” scenario. In many cases, says Jurey, “it’s not a big step” for a supplier of plastic parts for an automobile, for example, to produce a plastic component for a jet or helicopter. “We’re building a lot of vehicles in Texas,” said Jurey. “We’re building planes, we’re building missile systems, we’re building cars, we’re building locomotives, all in Texas. They all have a supply chain they depend on to supply those parts.” Landing the Toyota headquarters underscored political and corporate leaders’ long-standing boast that Texas, with its low-tax policies and business-friendly regulatory climate, is “heaven on earth for manufacturers,” in the words of Tony Bennett, president of the Texas Association of Manufacturers. Lawmakers last year took further steps to lure out-of-state industry by re-instating a tax break for research and development and extending a school property tax abatement for capital intensive projects.

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2016 impact Perry, who has eight months left in his 15-year run as the state’s longest-serving governor, also is aggressively trying to lure other companies to Texas – including the Tesla battery plant – by traveling the country to pitch Texas’ pro-business message. Perry has made recruitment missions to at least a half-dozen states, including heavily-regulated New York and California. The outgoing governor, who is weighing his options for another presidential run after his failed bid in 2012, also has signaled support for a legislative change that would presumably enhance Texas’ bid for the Tesla’ project. Texas is one of four states that bar manufacturers from selling directly to the customer – as Tesla does – but Perry has suggested that the ban, heavily backed by Texas auto dealers, is “antiquated” and needs to be changed. Economist Perryman said that the Tesla bid and Toyota’s move to Plano illustrate the “strength of the Texas business climate” as well as the expansion of the Texas automotive industry. For every job at the Toyota headquarters, the state will add another three jobs, Perryman said, “and the Tesla battery factory would result in still further gains.” The Toyota relocation is the latest example of auto companies moving into the South to take advantage of friendlier tax and regulatory policies. In contrast to the early- and mid-20th Century, when the American auto industry was anchored in Detroit, auto factories now operate in Mississippi, Alabama, Kentucky, Tennessee, Georgia, Virginia and South Carolina, as well as Texas. Outsiders don’t normally think of Texas, with its stereotypical image of oil and cattle, as a player in the auto industry. But cars, trucks, pickups and a whole host of components that go into their assembly have been part of the state’s economic DNA for decades. “Although lying outside the traditional automotive belt of the Midwest and Southeast, Texas is currently one of the top 10 states in the U.S. by number of automotive workers and number of auto manufacturing establishments,” says a 2013 report by the governor’s economic office. The auto industry in Texas, like that of the rest of the country, took a hit during the 2008-2009 national recession, but it has since rebounded. Auto industry employment in Texas grew 19 percent from 2009 to 2012, according to the latest statistics measured in the report, while Texas automotive exports jumped 68 percent over a five-year span. Jobs in auto parts manufacturing – which account for half the state’s auto manufacturing employment – surged by 29 percent since 2009.

Built in Texas Much of that growth is centered in the Dallas and Fort Worth region, which has been tied to the auto industry for nearly a century. A Ford assembly plant operated in east Dallas for 57 years – cars rolled off the assembly line with “Built in Texas by Texans” decals plastered on the rear windows – before closing in 1970. Now, General Motors, with 5,848 employees in Texas, dominates the auto manufacturing landscape in the Metroplex. At the 4.3-million-square-foot-plant in Arlington, located near the city’s entertainment zone and within sight of the Six Flags roller-coaster, three shifts of employees working round-the-clock turn out 2015 Chevrolet Tahoes, Chevrolet Suburbans, GMC Yukons and Cadillac Escalades. The plant, which rolled out a Pontiac Chieftan as its inaugural product in 1954, is preparing to celebrate its 60th anniversary and expects to produce its 10 millionth vehicle either late this year or early next year. Over its six-decade history, says spokeswoman Donna McLallen, the plant has produced “all sorts of awesome vehicles,” including El Camino pickups and Pontiac GTOS and Bonnevilles. In recent years, GM has spent half-a-billion-dollars on plant improvements, including renovations in the body shop and a new stamping facility that makes some of the larger components such as hoods, fenders and door panels. More than 2,000 employees have been added over the past two years, bringing the total work force to 4,500, not counting employees for on-site suppliers and contractors. The plant produces 280,000 vehicles a year, a third of which go into the export market. Toyota in San Antonio

The Toyota plant in San Antonio sprawls across land that was part of a working ranch dating back to the Spanish era in 1794. The company paid tribute to that historical link last fall with a new Tundra pickup model called1794. All Toyota Tundras come from San Antonio, giving the product the distinction of being “Texas born and Texas made, ” says Mario Lozoya, director of governmental relations and external affairs. San Antonio workers also produce 60 percent of Toyota Tacomas. Construction on the $2.3 billion facility began in 2003 and production began in 2006. With overtime, the plant is on pace to build 230,000 pickups this year, a vehicle every 61 seconds. Employment at the campus totals 6,000, including Toyota workers and employees of 21 on-site suppliers. Peterbilt, a 75-year-old truck-maker and a division of PACCAR, has its U.S. headquarters in Denton. The company’s only U.S. manufacturing site is also located in the North Texas city, with combined employment at the two facilities totaling in excess of 2,200. Peterbilt also operates a sister manufacturing plant in Quebec, Canada. Another major GM component in the Metroplex is GM Financial, a wholly owned General Motors subsidiary headquartered in the Burnett Building in downtown Fort Worth. As GM’s global financing arm, GM Financial has a total U.S. workforce of 3,800, including about 2,300 in the Metroplex, executing car loans and leases for customers as well as commercial loans to help dealers expand inventory or make improvements. After purchasing international operations from Ally Financial, GM Financial now operates in 18 countries, including the United States, Canada and Mexico. Four major North American operation centers are located in Arlington; Chandler, Ariz.; Charlotte, N.C., and Peterborough in Ontario, Canada. “We have a lot going on,” says spokeswoman Chrissy Heinke. “We’ve experienced significant growth the past few years and that will continue going forward.”

Story corrected to say $40 million in incentives from the state.