Will Greensboro go the Toyota way?

by Jordan Green

An April 15 New York Times report suggesting Greensboro was among four sites in the southeastern United States under consideration by Japanese automaker Toyota for a new assembly plant may have appeared as water in the desert to local officials and economists monitoring the Triad’s continued struggle to reinvent itself following the demise of textiles and other traditional industries.

The official word from Toyota is that such speculation is premature. Victor Vanov, a Toyota Motor Manufacturing spokesman in Kentucky, said on April 19 that the company hasn’t even decided if it will add another North American plant much less where it would be built.

‘“If customers continue to demand our vehicles in North America we will consider it,’” he said. ‘“If sales continue to grow we could expand our engine production or assembly production. Our key philosophy is localization. We want to build our vehicles where they’re sold.

‘“We have our hands full at this point,’” Vanov added.

At the same time that its Detroit rivals are retrenching, the Japanese automaker is carrying out an aggressive expansion in North America. The push includes a new assembly plant in San Antonio set to start production later this year of the Tundra, the company’s full-size pickup truck. Toyota is opening a new plant in Ontario. And the company’s flagship North American plant in Georgetown, Ky. is expanding to build the new hybrid Camry.

With that activity fueling the slenderest of hopes, journalists, economic development officials and academics might be forgiven for setting off a new round of speculation over whether the state will enter a new bidding war using corporate incentives to beat out competing locations. The Times also named Roanoke, Va., Chattanooga, Tenn. and northeastern Arkansas as possible contenders.

North Carolina approved the largest incentives package in its history in 2004, offering Dell more than $240,000 to build its new east coast computer assembly plant in Winston-Salem. The Tar Heel State has been a relatively late entrant in the incentives game. It’s been widely reported that state officials were taken by surprise in 1993 when Alabama managed to snatch away a Mercedes-Benz sport utility vehicle plant by significantly outspending their rivals incentives money.

Toyota may have started the game itself when the commonwealth of Kentucky put together a $147 million incentives package in 1985 to bring the Japanese company to Georgetown. At the time the United States was in the throes of protectionist fever and ‘buy American’ campaigns were whipping up hysteria against Japanese economic ascendancy.

These days academics and state officials tend say only good things about Toyota.

‘“I’ve never heard anybody say anything bad about Toyota in the Lexington community,’” said Kenneth Troske, who directs the Center for Business and Economic Research at the University of Kentucky, located 15 miles from the Georgetown plant. ‘“My son plays on a local soccer team. They need a new soccer field so they went to Toyota. They fund soccer fields because one of my son’s teammate’s dad is employed by Toyota.’”

Toyota’s investment and production at its Georgetown plant exceeded expectations, according to a 1998 report by the center. As a result of increased demand for its automobiles Toyota added engine and axle plants to its Georgetown operation.

The commonwealth of Kentucky was expected to collect $1.2 billion in tax revenues in the 20-year period from 1986 to 2005, over and above the cost of the incentives package, as a result of Toyota’s presence in the state, the report found.

‘“The use of an incentives package to help convince Toyota Motor Corp. to locate an assembly plant in Scott County, Kentucky has turned out to be a success beyond anything that was or could have been creditably projected in December 1985,’” the report concluded.

Troske, who moved to Lexington last year, said his predecessors at the center might have overstated Toyota’s economic impact, if only a little.

‘“Toyota’s running all these signs around here that say they created 385,000 jobs,’” he said. ‘“That’s all well and good, but many of those workers would have jobs were Toyota not here. They’re right next to the freeway in the middle of the country. It’s a pretty prime location. It’s easy to get parts in and out. Someone else would have located there.’”

With that caveat out of the way, Troske said Toyota is an ideal employer for central Kentucky.

‘“They’re typically a more efficient employer than many other makers of cars,’” he said. ‘“They tend to hire the most skilled workers. They tend to pay pretty good wages. They’re clearly an economic benefit to the community. Cincinnati and Dayton are suffering because the Ford company is laying off.’”

The fortunes of Ford ‘— recently displaced by Toyota as the world’s second largest automaker ‘— seem to have flagged in almost inverse proportion to the Japanese company’s rise. And while Toyota has yet to overtake General Motors as the world’s largest automaker, it is already ranks first in profitability, according to University of Michigan professor Jeffrey Liker.

‘“Toyota is rapidly building new capacity in the US, at a time when US manufacturers are looking for opportunities to close plants, reduce capacity and move production abroad,’” writes Liker in his 2004 book The Toyota Way.

Liker acknowledges an infatuation with Toyota’s operation style, extolling what he and others refer to as the ‘“Toyota Production System’” or ‘“lean manufacturing.’”

‘“I believe Toyota has raised continuous improvement and employee involvement to a new level,’” he writes, ‘“creating one of the few examples of a genuine learning enterprise in human history ‘— not a small accomplishment.’” So-called ‘“just in time’” production techniques that minimize inefficient parts inventory backlogs are also part of the secret of Toyota’s success, he argues.

‘“When you make lead times short and focus on keeping production lines flexible, you actually get higher quality, better customer responsiveness, better productivity, and better utilization of equipment and space,’” he writes.

A notable Toyota emulator is Dell, according to Liker, the Texas computer company that opened its Winston-Salem plant in 2005.

‘“Companies like Dell have also become famous for using short lead times, high inventory turns, and getting paid fast to rapidly develop a fast growing company,’” Liker writes. ‘“But even Dell is just beginning on the road to becoming the sophisticated ‘lean enterprise’ that Toyota developed through decades of learning and hard work.’”

Toyota has also been celebrated for its practice of empowering line employees to suggest improvements that enhance the overall quality of production.

‘“On one of my visits, I found that in the past year at the Toyota, Georgetown, assembly plant associates made about 60,000 improvement suggestions,’” Liker writes. ‘“The plant implemented 99 percent of them.’”

For all the talk about Toyota’s innovative management model not all reports from the shop floor are complimentary.

Nick Valle, a 39-year-old Lexington autoworker who resigned from Toyota after more than 13 years on the production line, suggested the company’s approach to its workforce is less than empowering.

Valle spent 12 years in the painting section and a year on the assembly line, and complained of strains such as carpal tunnel syndrome and a neck injury.

The incident that led to his exit was a shoulder injury. The shoulder injury led him to exclusively use his other arm to work, and the concentrated stress resulted in a torn muscle in his forearm.

‘“The group leader didn’t want me to go to [the company doctor] even though I told him I couldn’t work,’” Valle said. ‘“I went anyway. They told me it wasn’t work related.

‘“I ended up paying for my surgery with my own insurance, and I paid some out of my pocket,’” he added. ‘“When they brought me back they said I had to take a job with a ten dollar an hour pay cut or resign. I resigned.’”

As he works out the terms of his disability payments with Toyota at the end of an abbreviated career, Valle weighs the pros and cons and finds the automaker wanting.

‘“It’s great pay, but it’s because nobody would do the work otherwise,’” he said. ‘“They hire temps. If the temps get hurt they don’t get any healthcare. They get pushed out.’”

Toyota’s efficiency, productivity and growth trends would appear to make the company a desirable partner for local governments courting new jobs, raising the question of whether state and local governments should start planning a dowry of corporate incentives.

Troske cited a 2004 study by Massachusetts Institute of Technology professor Michael Greenstone and University of California at Berkeley professor Enrico Moretti as evidence that incentives help improve the welfare of communities that deploy them.

‘“They look at location, they look at the bidding, and they find that in the place where the company locates the land value goes up greater than the amount of the incentives,’” Troske said. ‘“There’s a lot of powerful arguments for why you might want to offer incentives because it increases their efficiencies.’”

And yet he cautioned that academics haven’t yet determined whether incentives significantly affect companies’ decisions about where to locate. The Center for Business and Economic Research has received a contract from the commonwealth of Kentucky to study just that question.

Toyota’s Vanov indicated the company isn’t going to swoon at a display of cash if the prospective partner doesn’t have some other attractive qualities.

‘“For us it is a factor but not a very big factor,’” he said. ‘“The availability of quality workforce, infrastructure, cost, interstates, location to suppliers ‘—’ those tend to be more the high priorities. Incentives is by no means the number-one factor.’”

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