Toyota North America is using its headquarters relocation to Plano from Torrance, California, to “trim” its workforce where appropriate. Devising a new organizational structure has taken longer than anticipated. And, the city of Dallas was never in the running to land the Japanese company’s HQ campus. Those were points made by Jim Lentz, the Toyota North America chief executive, in a frank, wide-ranging interview with D CEO over lunch recently at Plano’s Capital Grille. The 59-year-old Lentz, who came up on the company’s sales and marketing side, addressed a variety of topics during our 90-minute talk. Among them: Generation Y’s work habits, Toyota’s reputation for turning out reliable-but-bland vehicles, and why the world’s largest automaker is building plants again. The interview has been edited for clarity and space.
D CEO: Has anything surprised you about North Texas so far?
Jim Lentz: I don’t know if ‘surprised’ is the right word, but the genuine friendship from people here has been fantastic. The other part is that, even when you talk to politicians here … they are all on the same page about what’s best for Texas. It’s always, ‘Do what’s best for Texas.’ I didn’t have that experience in California, where there were truly two sides on most issues, and it wasn’t necessarily about what’s best for California. Here, you guys have the formula down.
Where in the Dallas-Fort Worth area have the employees been choosing to live so far?
What’s interesting, and what I had hoped for, is that people are finding different places to live as they come here. We’ve got people in Prosper, in McKinney, in Frisco, in Plano, out in Southlake. I’m in Westlake. To me, that’s the true test that we chose the right place: The people have options. I think once we have all 4,000 people here, we’re going to see the same kind of ‘scatter’ take place.
How are you dealing with such a monumental task—overseeing this major move—while at the same time keeping the company running?
As I tell people, it’s like having to chop wood and sharpen the axe at the same time. If all you do is chop wood, your axe is going to get dull. If all you do is sharpen it, you’re not going to get your wood chopped. The other part is, we’ve got real good people.
So while I kind of started and spearheaded the move, our chief administrative officer, Osamu “Simon” Nagata, is now tasked with getting this whole thing done—from dealing with what we’re doing down at the facility to where we are with organizational structure and making sure business continuity stays in place. I’m still on call, but I don’t have to have 10 meetings a day on that. That makes it quite a bit easier, especially now that I have responsibility for manufacturing.
I’m in a position now where I have to learn quite a bit about that side of the business; that’s new for me. I’m never going to be an expert … but I need to understand the business of manufacturing, especially since we’re putting in a new plant [in the state of Guanajuato, Mexico, to build Corollas]. I’m going to be the guy who’s going to eventually approve all the specs and the costs of that plant. So I need to understand why we’re going in this direction, versus that direction. I’m going to have to do a real quick study on that. The good news is, this is going to be the first new-generation plant that we’ll build globally. So I’m kind of learning … as we’re all going to learn it, as a company, at the same time.
I read that you’re planning on having 4,000 employees located in Plano, plus 1,000 contract employees, for a total of around 5,000 here.
I know our permanent Toyota employees will number around 4,000. It’s roughly 1,000 coming from the engineering side in Kentucky; roughly 1,000 coming from the finance company; roughly 2,000 coming from the sales company. Exactly how many contractors or vendors that we deal with, I don’t know if we have determined the number yet. Probably around 1,000 is a good ballpark.
When the groundbreaking for the new facility occurred earlier this year, you said that by the middle of this summer you’d have a new organizational structure in place and would be starting to make offers to relocating employees. But things have been delayed. Did something happen in the meantime?
I think we underestimated how complex it was going to be. So if we were just moving the sales operation and the engineering operation kind of intact to new locations, that would have been relatively easy. But the fact that we now are taking these affiliated companies [Toyota Motor Sales U.S.A. and Toyota Financial Services from Torrance, Toyota Motor Engineering & Manufacturing North America from Kentucky, and Toyota Motor North America from New York City] and integrating a lot of their operations and figuring out what the new structure will be—that’s taking longer than we thought.
But the good news is, people are really sitting down and saying, ‘What exactly is it that we provide, either for our customers within the company, or for our customers externally? And if we start with a clean sheet of paper, what would that organizational structure look like?’ So, it has taken us longer as a result of that. I think by the end of this year we will have a much better idea of how many people will want to come, based on what their job is in the new structure. And then we’ll be hiring [in North Texas] as well.
I’ve also read that the company is sort of top-heavy with highly paid middle managers, so the move might be an opportunity to streamline, to rein in costs. Is this ability to ‘trim’ what you’re talking about?
I think we’ll have the ability to trim. While we’re going to offer everyone a job in Texas, for a number of reasons some people aren’t going to be able to do that. Some may decide that they’re going to retire; some may not want to leave California or Kentucky. All that’s going to end up in a certain number of people that can’t leave. So, we will right-size the organizations as we go through that. It will allow us to reduce the overall numbers a little bit.
When Nissan relocated its headquarters from California to Tennessee, the company was said to have had ‘continuity’ problems, and some contend only 25 percent of the staff wound up moving. You recently mentioned 75 percent as a norm that do not make the move. How will you avoid similar continuity problems if so few relocate?
A couple of different ways. Our intent is to try to keep as many of our associates as possible. To me, the way you keep more people is you give them a longer period of time to decide what to do. So you don’t announce on Monday that in 90 days you are going to be in a new location. Mercedes is doing that; Nissan did that. We decided not to do that. We decided to announce three years in advance [the headquarters is expected to be completed in 2017], so people would have time to decide what’s best for their careers, what’s best for their families. So I think, No. 1, we took pressure out of that situation. No. 2, we paid to have people come look at Dallas. … So that fear of the unknown was kind of taken away. We also have retention bonuses that we’re paying people. What you want to try to do is avoid losing a lot of your institutional knowledge in strategic planning, product planning, areas that are very specific to your organization.
Another goal of the consolidation is to improve communication among the company’s various “silos,” which I’ve seen described as Toyota’s “cultural problem.” You’ve said you’re going to double the percentage of the collaborative space here. How is that going to help?
If you are coming from communications to this new facility, for example, there’s not going to be a [separate] manufacturing communications group as well as a sales communications group. They will in fact be sitting together as one team and collaborating.
You hear a lot about ‘partner companies’ like advertising agencies that also will be moving to North Texas. Have you seen some of that?
I have not yet. But, if you look at the Toyota Motor Sales U.S.A. division as an example, my goal is to move the divisions at the very end. That’s because the divisions have so many moving parts—from the franchise portion to the marketing portion to the sales portion—that I can’t really move one without moving them all.
So who’s here already?
Primarily what we call the shared services side. So communications is here, IT is here, human resources is here. That’s kind of the first wave to come in. Legal will follow soon; finance and accounting will follow soon.
It’s been written that it was really your idea to do this consolidation, and that Akio Toyoda, the Toyota motor president and CEO, basically said, ‘Good; Go for it.’ I’m wondering if that’s accurate—and, also, what was it about North Texas that compelled you to come here?
What happened was, Mr. Toyoda decided the world was going to be separated into eight different regions. … And he put four of us non-Japanese [executives] in charge of four of those regions, so half the world is now being run by non-Japanese. He basically said, ‘You need to develop your plan to make your business sustainable for the long term.’
And I was kind of sitting across the table from him, and I’m thinking in my mind, ‘So I need to develop a 10-year business plan; that’s what he’s asking for.’ And as I started to say that, he said, ‘You don’t understand, do you?’ And I said, ‘Understand what, sir?’ He said, ‘Long term, what do you need to do today to make this business sustainable for the next 50 years?’ That’s when I said, ‘Let me go back and think about it, and I’ll come back to you.’
Literally a month later, I told him that we are four separate affiliated entities in North America. And, to me, change is going to be more rapid in the future if we speak with one voice and if we communicate better—that is what’s going to make a sustainable future. So I told him, ‘I want to create one headquarters.’ And he literally kind of sat back and thought about it for about five minutes, and then he said, ‘Put together the business plan. Let’s do it.’
There were only about six or seven people, including Akio, in the company who knew about it. So we had to work with a consultant to figure out if this was even possible to do. And after we did that, we went back to him and said, ‘It’s possible, and here’s our plan.’ And so I touched base with him along the way just to make sure I had enough rope—hopefully not to hang myself!—and we basically put together the project.
“I think Plano was the best location in all of the United States because it really fulfilled just about every need.”
That follows with why we decided to come here. If you know much about Toyota, we love charts and figures and studies and everything else. So we came up with this criteria list that we were going to evaluate markets on where to go. About half the criteria were business-related; the other half were team-member-related. Each one was weighted and scored and summed up. So we looked at the top 100 markets, and basically 75 of those markets fell out almost immediately.
On the business side, we wanted something close to our manufacturing footprint. We did not want to be in a high-rise, so we needed about 100 acres. And we wanted a good airport that was in close proximity to all our plants and [would enable us] to get to Japan. On the team-member side, we wanted good schools, a reasonable cost of living and housing, and less-stressful commutes. North Dallas really stood out.
And when you really look at this particular parcel of land, I think it was the best location in all of the United States because it really fulfilled just about every need. The only two drawbacks that I see here are climate—it’s pretty hot—and public transportation could have been a little bit better. I think down in the city itself the rail system is pretty good, but as you come out north it’s not quite as good.
Was the city of Dallas itself ever on your list?
No, because we needed somewhere that if the people wanted to live in the city they could, but if others wanted to live instead on a ranch or on a lake they also could while still being close to Dallas/Fort Worth International Airport. (A lot of our people are in planes going around the states.) If you draw about a 30-minute commute circle around Plano, all those options are in play. If we had chosen Dallas or South Dallas, you would have taken quite a bit of that out.
Toyota Motor Corp. just had a record roughly 20 percent annual profit growth. And Mr. Toyoda has said the company’s now on track for sustained growth—but he added that the coming year will be a ‘crucial test.’ What does he mean by that?
We went through about a three-year hiatus of not building any plants globally. Part of that was making sure they were utilizing the existing capacity, and part of it was making sure we developed our manufacturing capabilities so that, as we began to expand, we had the talent to be able to move from plant A to start plant B. So, having announced the new plant in Mexico and [another] new one in [Guangzhou,] China, we are now going to start expanding into more plants again. And the crucial thing is going to be developing the right people to be able to do that.
Also, our Toyota New Vehicle Architecture strategy is just being implemented. The first vehicle [with the new architecture] is going be the Prius hybrid. The new architecture will roll out to every platform over the next five years, so that’s a big challenge going forward. I think the third challenge is … we’ve got some [global] markets that are doing very well, while others are still challenging. So it’s not nirvana.
For decades, Toyota has been known for the reliability of its vehicles. But at the same time it’s also been criticized for producing vehicles that are bland and unexciting. Does that bother you?
It didn’t used to bother me, because it was deserved. We were an engineering company that believed that quality, durability, reliability, and safety drove the purchase decision of the customer, and that the more emotional side of cars—whether they’re fun to drive, the styling—wasn’t that important. And we were too late to change to that. So, we got the reputation of having boring cars. They were great, they were bulletproof, they lasted forever, but they weren’t super-attractive.
We’d been kind of beating the drum that we felt that times were changing, and we had to really get more stylish, more fun to drive, but we were still driven by the engineering side. So fast-forward [to 2009, when] Akio [Toyoda] comes in. He’s a car guy; he loves driving cars; so he wants [to make them] fun to drive. Then we came up with styling on the new Avalon that was spectacular, that was much more emotional—a big change from what Avalon had been—and it was a huge success. We had the FJ Cruiser come out. We had the new Lexus IS come out, the new GS, the new RC. There are a lot of examples where I think we are actually better than the industry in terms of styling, but we still hear we’re just boring vanilla. I think we deserve credit for being much more stylish now. It takes a while to change perception, but I think it will catch up in time.
You mentioned that Mr. Toyoda is a big car guy. Are you a car guy like him?
I’m a different kind of car guy. Akio loves driving by the seat of his pants; he’s a race-car driver. So he’s kind of more on the engineering side. I love the business of cars. I love the business of looking at macro trends, population growth, changes in generations, and trying to distill from all that where customer needs are going to be. And then trying to forecast that need far enough out to be able to build cars that customers are going to demand.
Since you mentioned customers, there’s a perception now that people in their teens, 20s, and 30s are not as car-oriented as previous generations. Do you agree, or is this a temporary phenomenon caused by the recession?
I think there is truth to that. I have two children, ages 28 and 31, that fall into the Gen Y category. I think that generation was really hit hard by the recession—more so than most groups. They had huge student loans. They were having a difficult time getting jobs. They were moving back in with mom and dad. They do have a desire to live in more urban locations, which reduces the need for cars. I think people were looking at what was happening at that point in time and projecting … that it would last forever.
“I think we deserve credit for being much more stylish now. It takes a while to change perception, but I think it will catch up in time.”
I have one son, the 28-year-old, who lives in San Francisco; he doesn’t own a car, takes public transportation. It’s not that he doesn’t like cars, but he doesn’t like having to deal with parking and all the other stuff. My other son just moved into his first home and has his first child. So he now has two cars—a Prius and a Highlander—because his life-stage needs are changing. And that’s what we’re seeing with this generation in general.
“I think we deserve credit for being much more stylish now. It takes a while to change perception, but I think it will catch up in time.”
As they move out of this mountain of debt, as they move into more stable, higher-paying jobs, get married, and have children—that generation is coming back to the car market faster than other generations have. The increase in Gen Y sales now is over 10 percent, so they are outpacing the general market by almost 2:1.
You’re one of the few ‘foreigners’ to be a senior officer of Toyota. So with your experience navigating both cultures, is there anything that you think American CEOs can learn from the Japanese way of doing things?
I think the most important part … is trust. I’ve been with the company 33 years. I’ve traveled to Japan 150 times—I mean, a lot! I do a trip there [about] every three weeks. You have to be willing to put the effort in to work face-to-face. You can’t do it over the phone; you can’t do it on conference calls. Their culture demands that face-to-face, because there’s a lot of [emphasis placed on] how you go about saying things. There’s a lot of reading of body language, which maybe doesn’t happen as much in the U.S. or Western culture. You have got to be willing to spend the time to be able to do that.
Looking ahead, what are the company’s biggest challenges?
I know the population is growing; I know what family formation is doing. So going forward I see the need for more multi-purpose vehicles, for example, as opposed to just sedans. We really feel that today, in that mid-sized passenger cars are shifting into small SUVs. Today’s small SUV really is a mid-sized car from the past in terms of fuel systems, price points, etc. We definitely see people going that way, voting with their dollars.
So longer-term, the trend could be toward less fuel-efficient vehicles. At the same time, I see the [the federal] CAFE [fuel] standards coming at us. While I have solutions to get part of the way there, and there’s still time to do so by 2025, I’m not sure how we’re going to rewrite physics to get [all the way there]. So I really see this clash coming between what customers want and where regulation [is headed].
If gasoline prices were going up over time, I would say eventually those two would match at some point. But because of technology and fracking and [lower] oil and gasoline prices, my biggest challenge is: I may be able to spend $4,000 or $5,000 per vehicle to be able to meet the fuel standards, but, is the customer going to be willing to pay for that? … That’s kind of what keeps me up at night.
What are the main things that a CEO needs to keep in mind running a mammoth organization like yours?
I understand that there is a sweeping change taking place in the people who work in the business. Those of us who are baby boomers basically put in the hours that were necessary; we did what we were told. Things today are very different. I look at my kids—Gen Y—and how you work with them is very, very different. Their personal time is their time. They’re not going to put in the hours we had to. One of the reasons is, I think they’re smarter than we were. I think they multi-task much better than we did. We also have to understand that this younger generation needs to know the ‘why’ for a lot of things.
[Working with this new generation] just takes time, it takes coaching. You can’t ‘manage’ people today, you lead people today. You and I didn’t want to be managed, but we were. My children will never be managed; they want to follow leaders. So the ability to be a good leader is really, really critical. Being a taskmaster is not going to get you into the future. And if people think they are going to change how this new generation thinks and acts, they’re not going to.