CEO: Drawing Toyota to Texas Worth $40 Million Subsidy

When Toyota announced in early 2014 that it was moving its North American headquarters from Torrance, Calif., to Plano, the business story was quickly overtaken by a political one: Did Texas get ripped off?

While then-Gov. Rick Perry had agreed to a $40 million incentive deal, news that North Carolina had offered more than $100 million raised questions about whether the public subsidies even factored into the company’s decision.

During a wide-ranging on-stage interview Thursday with The Texas Tribune’s Evan Smith, Toyota CEO Jim Lentz tried to put the incentives in context.

“While that’s a lot of money, it pales in comparison to the in excess of $1 billion that I’m investing just in this campus by getting all the people here,” Lentz said at an event hosted by the Austin Economic Club. “The way I look at it is, we both have skin in the game. Texas now has an interest in Toyota and we now have a big interest in Texas.”

Lentz pointed to a long list of factors that drove the company’s decision to move to Texas, including the availability of affordable land and a lower cost of living for employees.

“Incentives are part of that process but we are not a company that’s going to say, ‘Whoever is going to give us the largest incentive, that’s where we’re going to go,’” Lentz said. “That would be foolish to do.”

Texas' business-friendly environment was also an obvious draw, Lentz said, but so was the Dallas area's political diversity.

“One reason we chose Plano is if you draw a 30-mile radius around that, in terms of commuting, people can be in Uptown in Dallas, they can be in McKinney, they can be wherever they want and the politics vary quite a bit,” Lentz said. “So those in the company that are progressive Democrats, they can live in an area where there are progressive Democrats.”

Could he have swayed his board to move the company to Texas absent the $40 million? 

“It would have been tough, especially the delta from in excess of $100 million down to zero,” Lentz said. “It would have been a real tough sell.”

The state’s $40 million package was based on Toyota’s commitment to bring 4,000 jobs to Texas. Speaking to reporters after Thursday's event, Lentz expressed confidence that the company would have no trouble reaching the job creation target and collecting the full subsidy. He expects to have the vast majority of those jobs in place by 2017. 

Criticism of the Toyota deal has fed a broader debate about whether Texas is getting the proper return on its incentive investments. During this year’s legislative session, lawmakers debated severely curtailing the money budgeted for incentives. They ultimately decided to abolish the state’s Emerging Technology Fund, which was geared toward nurturing start-up firms, and split most of its funding between a broader economic incentive program, the Texas Enterprise Fund, and a new fund created at Gov. Greg Abbott’s urging to draw notable academics to Texas universities.

Lentz also touched on two other issues currently rollicking the automobile industry: Google’s high-profile testing of self-driving technology and Volkswagen’s admission to cheating in emissions requirements on 11 million diesel cars around the world.

Toyota has no fears of facing a scandal similar to the one hitting Volkswagen, Lentz said.

“We don’t have diesels and we have no cheat software operating in our vehicles,” he said.

While Google has recently expanded its testing of self-driving cars in Austin, Lentz said Toyota views fully driverless cars as impractical, though more autonomous features are coming to its vehicles.

“I can’t tell about the distant future, but in the mid-term, we feel that a driver is going to have to always be behind a wheel and in control of that vehicle,” Lentz said. “We don’t believe in a car where somebody jumps in a backseat, takes out the newspaper, then drives to work. That may happen someday but it’s going to be a long time.”

Disclosure: Toyota and Google are corporate sponsors of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.