Q&A: Toyota's Lentz on what triggered the move, and the upheaval ahead

Lentz: "I wanted to get sales, manufacturing and corporate operations in one location to be more efficient."

In the wake of Toyota’s announcement that it is centralizing its U.S. operations in Plano, Texas, Toyota North America CEO Jim Lentz spoke with Automotive News West Coast Editor Mark Rechtin. Here is a transcript of that interview:

What was the genesis of this? Was it Akio Toyoda’s idea? Your idea?

When I was made CEO of North America, Akio made it quite clear that he wants North America to be self-reliant. He wanted me to reflect on whether we are ready to be self-reliant and whether we are structured in such a way to take that responsibility. It became clear to me that, although the four-affiliate structure worked in the past, it was going to get into our way in the future. I wanted to get sales, manufacturing and corporate operations in one location to be more efficient, and to put more resources against engineering and design.

But to prepare the company for the future, you’re going to put it through three years of upheaval and chaos.

Akio wanted me to look further out, to change Toyota to be ready for the next 50 years. Certainly, I’m not going to be around 50 years from now, but when you realize your time horizon is 50 years, the next three years, we’re going to get through it.

How do you see your move as differing from Nissan’s relocation to Nashville in 2006?

As I look back on Nissan’s move, it was about reducing cost and headcount. Ours is really the exact opposite. Ours is about retaining associates, and not finding ways to get rid of them or replace them with cheaper headcount. We are not a cost-cutter place. We are a relationship place. Our relationship with our employees is critical if we want to have good relationships with our customers.

But surely there will be some attrition. Folks have roots where they live. Maybe they don’t want to move to Plano. Do you have a ballpark for how many people won’t make the move?

It’s tough to estimate at this point. We’ll have a better idea later this year when we start putting the structures together. Nissan’s move was a fairly large attrition number. But we have relocation packages for everyone, and that’s typically not what happens. Everyone who goes or stays until the end will be offered a retention package. We are doing a lot of things to encourage people to go [to Texas], or to make a decision. If you move, you get a retention package. If you stay until the very end, but don’t move, you get a retention package. We’re trying to keep as many people as we can.

Some cynics are saying this is a way to clear out aging deadwood in middle management, in that a relocation is cheaper than a reduction in force. Are you going to offer early retirement to encourage tenured managers to not make the move?

There is no plan for early retirement to be offered. We’re taking this on a case-by-case basis. People are going to evaluate career-wise or family-wise if it makes sense for them. There is no targeted reduction percentage. This will happen organically.

What about Gulf States Toyota Distributors? Now that you are in its backyard, what are your plans for it?

As we went through the process of scouting locations, and we knew the Dallas metro area was a finalist, I spoke with GST to make sure they were OK if we chose that location. Our relationship is fantastic. They do a great job for us. There are no plans to change that relationship. I’ll be there Friday to let them know that personally.

In terms of the order of groups leaving, might Lexus or Scion go ahead of Toyota Division, as a smaller-size test case?

I think the sales groups will probably go last. I want them to remain close to the Toyota Financial Services because they are integral partners. And a lot of support functions, like distribution operations, either they all have to go or they all have to not go. We haven’t planned how this campus is going to look yet. We’re going to rent [temporary] space for 500 or 600 people. I don’t want to do double moves. There are no plans in 2015 to move the sales organizations.

What does this move mean to you?

I’ve been at Toyota for 30-plus years, and this is the biggest announcement we’ve made since we’ve been in North America. I am not combining these three legal entities. I am moving them to learn so we can work as one, in one location. In the future, as we become a high-performing group, I may change these three entities into one. Toyota Financial Services also is moving to the campus but will remain a separate organization reporting back to Japan. A big piece is expanding Toyota Technical Center in Michigan, to get direct procurement closer to design, engineering to work closer with the majority of our suppliers, and then production engineering moves to Georgetown [Ky.].

What does Toyota have left to prove? And how does the move to Texas fit into what Toyota wants to be?

What we have yet to prove is what we’ve tried since the beginning: how to build the best cars and provide the best experience to our customers. Having the best collaboration between sales and marketing is the best way. We have production engineering in Erlanger [Ky.], but the demand side of ordering products is in California. So when we get weekend sales reports, and Camry has a great weekend, that report gets fed eventually to production control, who may look at it in the next couple weeks. But [the factory] has no sense of what’s happening in the marketplace. If I can have supply and demand sitting next to each other, with information in real time, and collaborating with each other, that makes us a stronger player.

You can reach Mark Rechtin at mrechtin@crain.com -- Follow Mark on Twitter: @markrechtin



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