Dean Barber

Where Will the $1.6 Billion Toyota-Mazda Plant Land?

In Corporate Site Selection and Economic Development on August 13, 2017 at 9:03 am

Last week, I took a friend of mine, an economic developer from Alabama, on a tour around Dallas. One of the places we stopped was at the new North American headquarters of Toyota in Plano.

I stayed behind the wheel of my Toyota Tacoma truck while my friend stepped out to take pictures. When he returned, I said, “That’s likely where the decision is going to be made on the new plant.”

I was referring to an announced $1.6 billion joint venture manufacturing plant that will be built by Toyota and Mazda, well, somewhere. Making sense of the project, much less where it will ultimately land, is like putting a big jigsaw puzzle together, both for the two companies involved and observers alike.

Toyota, which has manufacturing plants scattered across multiple locations in the United States, will be taking a 5 percent ownership position in the much smaller Mazda, which has no manufacturing presence in the U.S.

This future U.S. plant, expected to open by 2021, will have a capacity of 300,000 vehicles annually and employ 4,000 people. It will produce Toyota Corollas and Mazda crossover models. The companies said they plan to work together to develop new technologies.

Toyota is currently assembling Corollas at its plant in Blue Springs, Miss. The company is also building a new $1 billion plant in Guanajuato, Mexico, that was to make the Corollas. Those plans have now changed. The future plant in Guanajuato will build Tacoma pickup trucks.

This project announcement frankly surprised me. It comes at a time when the auto industry is looking at a substantial and prolonged downturn, and when Mexico has been the preferred location for OEM assembly plants.

The Winds of Change

But things happen, and calculations do change. For one, we have a president in the White House who has openly criticized NAFTA and any company that would even consider expanding capacity in Mexico instead of the U.S.

President Donald Trump singled out Toyota in January for its plan to build a Corolla small-car factory in Mexico. As Toyota’s North American Chief Executive Officer Jim Lentz discussed setting up autonomous- and connected-car business units in the U.S. with Trump in March, the president cut him off and said the company needed to “build those new plants here.”

While the OEMs may deny it (and Toyota subsequently did as did Ford), even the smallest possibility of tariffs being imposed on imported vehicles from Mexico might prompt them into rethinking where they should build.

“The remarks of the U.S. president at the start of the year aren’t related at all” to the decision to build the new U.S. plant, Toyota President Akio Toyoda said at a joint press on Aug. 4 with Mazda chief Masamichi Kogai in Tokyo.

That might very well be true. But smart companies, and Toyota, the world’s largest automaker has proved to be just that, are cognizant of how the winds of change, in both politics and consumer choices, can affect future operations. In short, they can and will adapt.

Why Not Blue Springs?

In his Aug. 4 press conference, Mr. Toyoda said: “Taking into account competitiveness, demand, and getting the most from this joint venture, as well as the fact that we currently make the Corolla in Mississippi, we decided to consolidate production in the U.S.”

So why not just keep making Corollas and the Mazda crossovers at the 1,700-acre Blue Springs, Miss., site, half of which remains vacant, with roads and sewers already in place awaiting further investment?

Opened in 2011 as its sole U.S. assembly location for the Corolla, Blue Springs has proved itself. The plant reached 500,000 cars faster than any other plant in Toyota history, and last year it won a coveted J.D. Power Initial Quality award. Moreover, the existing supply chains for the Corolla in Blue Springs are already in place, which would maintain created efficiencies.

Despite all that, my best guess (and that is all it is) is that Toyota and Mazda won’t be choosing Blue Springs. By the very fact that Toyota and Mazda announced the joint venture project indicates they are unlikely to use an existing site, but seek greener (or at least different) pastures.

In short, they are shopping the project around for a reason, and I believe that gaining political favor is one key factor. And we’re not just talking about the Trump administration. It goes far beyond that.

Toyota wants governors, members of Congress and senators on their side, which I believe will be reflected in the site search for this future plant. More on that in a moment.

Eleven States

If you were to take the word of the Wall Street Journal as gospel, the Toyota-Mazda project has come down to 11 states. Those states are Alabama, Florida, Kentucky, Illinois, Indiana, Iowa, Michigan, Mississippi, North Carolina, South Carolina and Texas.

Some of that makes sense to me, some not so much. With this mix of Southern and Midwestern states, why aren’t Tennessee, Georgia, Arkansas and Ohio included in the mix? Georgia, in particular, makes imminent sense to me for this project.

One possibility is the Journal, which is a great newspaper, just got it wrong. Having been a former business reporter and editor, I can tell you that sometimes happens despite all the best efforts. I remember years ago when the Journal reported that Mercedes-Benz would land in North Carolina, when in fact it ended up in Alabama.

But if the Journal’s latest report is accurate and the search has indeed been relegated to these 11 states, then I am going to venture a guess (and that is all it is) on where this $1.6 billion-dollar plant will go.

History Can Provide a Clue

We cannot predict the future with absolute certainty under any conditions. However, we can often detect patterns from history, which allows us to make educated guesses. That is all that I am offering here, an educated case based on what Toyota has done in the past.

If you look at a map of the many points where Toyota has manufacturing plants in this country, you will notice that the company seldom puts facilities in the same states. This especially holds true with its large vehicle assembly plants. They are all in different states.

Why is that? I believe it is to hedge its bets and curry political favor. With 10 plants and a direct investment of $21.9 billion, soon to go higher, Toyota figures it cannot have too many friends in governor’s mansions and on Capitol Hill.

North Carolina Makes Sense

I will hazard a guess that if the Journal’s list of 11 states is correct, that the winning state will be North Carolina. Why North Carolina?

Ever the bride’s maid and never the bride in the competition for automotive assembly plants in the past, North Carolina is very much hungry for this type of project. The state also represents new ground for establishing new friends and allies, which has been the modus operandi for Toyota.

Florida, Illinois and Iowa could also fill that political bill, but Toyota may have overriding concerns about their strategic locations vis a vis their existing supplier network and customers, or in the case of Illinois, its business climate.

Again, if the Journal’s list proves true, Kentucky, Alabama, Mississippi, Indiana, and Texas are out, only because Toyota already has a big presence there. Those congressional delegations are pretty much locked down.

South Carolina, which I believe has one of the best business climates for manufacturing, is out only because it is a small state where BMW and Volvo have put down roots. BMW is especially the big fish there. Michigan, where Toyota has a design and technical center, is out because it is the legacy home of General Motors, Ford and Chrysler and Toyota’s voice would simply be one in the choir.

A Supplier State

That leaves North Carolina, a supplier state where Toyota buys automatic transmission parts, catalytic converters, driveshafts, window motors and tires. There are about 300 automotive suppliers in the state.

North Carolina is home to Research Triangle, anchored by North Carolina State University, Duke University, University of North Carolina at Chapel Hill, and the cities of Raleigh and Durham and the town of Chapel Hill. All that talent can be leveraged if needed. And it usually is.

What’s more, North Carolina has four mega-sites that could meet the needs an OEM assembly plant.  All four have convenient access to interstates and rail, and have undergone environmental audits, geo-technical studies, have water and sewer lines, offer low-carbon power and provide high-speed fiber optics connectivity.

If I were advising Toyota (hint, I’m only 20 minutes away from corporate headquarters) or Jones Lang LaSalle, which is handling the site search for Toyota, I would tell them to take a long hard look at:

  • The 1,449-acre Kingsboro CSX Select Site, 10 minutes east of Interstate 95 and one hour east of Raleigh
  • The 1,800-acre Chatham-Siler City Advanced Manufacturing Site in Chatham County in the center of the state
  • The 2,700-acre Moncure Megasite, only 20 minutes from Raleigh-Durham International Airport
  • The 1,500-acre Greensboro/Randolph Megasite, southeast of Greensboro

Of course, other sites in other states may fulfill the requirements of the Toyota-Mazda partnership. But North Carolina makes sense, due in part to Toyota’s proclivity to expand its geographical and political footprint, which I think is a very smart move.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. (Send us your RFPs.) Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com

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