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Tuesday, April 29, 2014

Reality Bites

Toyota Motor has announced it will move 2,000 employees from Southern California to Texas.

The move is a victory for Gov. Rick Perry of Texas and his campaign to woo businesses from California. Toyota considered several sites in the United States before deciding on the Dallas area, where taxes, real estate and other costs are considerably lower than California’s.

Federalism is the strongest bulwark against socialism.

25 comments:

Bret said...

Reality Bites, but there was a pretty hefty bribe as well:

Texas promised Toyota $40 million, or about $10,000 for each of the 4,000 jobs expected as the company moves its North American headquarters to North Texas from Southern California over the next three years.

So maybe not the best example of low-tax/low-regulation causing companies to move. :-)

California is losing hundreds of jobs per day to low-tax states, though.

Clovis e Adri said...

Bret,

Since you own a company in California, the question follows: why are you not moving then?

Bret said...

We're looking into it.

We're also looking at closing down.

Clovis e Adri said...

That's really sad news.

What's happening, the farms are afraid of moving to automation?

Bret said...

I'm primarily getting too old to bear the risk waiting for something to take off, and unfortunately, without me, the company might not be viable. Selling a machine here and there isn't doing it for me. The lettuce market can only support about 100 machines total, so while the farmers have been slow to buy, even if they all finally decide to buy one (which should be a no-brainer since the payback is about 6 months or less), it won't make us a huge amount of money. Developing each and every market and getting people to change practices is extremely difficult.

We're looking at an automated weeder for things like corn based on our lettuce thinner and that market is not in California so there's some chance we would move the company east. Wyoming, Colorado, Iowa, Tennessee, and Texas have been mentioned. Nothing really serious yet. We would actually have to sell a substantial number of machines before we would move. Admittedly, location is much more important than State taxes for that decision, though State taxes and regulations would play some role.

Clovis e Adri said...

Bret,

Thanks for the explanation.

Can you tell me why would you need to move in order to produce for other markets in US? Can't you just open a representation there to make the contacts and help to give the feedback for improving your machines?

You mention the limit on 100 machines in California. But I guess there are so many other places that produce the same things, like lettuce and grape, right?

Why are you not thinking about selling it to Europeans, for example? Or Latin America, or Asia? That would make for many hundreds of other machines...

Bret said...

Clovis asks: "Can you tell me why would you need to move in order to produce for other markets in US?"

It's a matter of cost and response time. We will of course have regional reps, but it's much easier to support them and cheaper to get there if they're closer.

Part of it's a San Diego problem (versus a California problem). If we were close to LAX, I could a lot more places direct. But from San Diego, there's always an intermediate stop which adds hours to the trip and money to the fare.

Eventually we would consider export markets, but given how hard it is to sell stuff here, our ability to penetrate very far away markets is definitely in doubt.

For grapes, Australia (Treasury Wine Estates) is one of the investors so that will likely be an export market. Next would be Chile and South Africa since both have planted for mechanization. Europe would be last because while they have huge acreage, their vineyards are very old and planted too close together for us to get our machine in.

Hey Skipper said...

[Bret:] Reality Bites, but there was a pretty hefty bribe as well …

Good point.

Which raises a few others. Businesses succeed by meeting (or creating) demand at an affordable price. Isn't Texas doing the same thing, except on the flip side of the coin?

Getting the IANAL disclaimer out of the way here, it would seem to me that these bribes would be vulnerable to equal protection lawsuits. Presuming Texas offered a bribe to Toyota, that means other taxpayers are funding that bribe. That seems prima facia violation of equal protection, yet who would have standing? After all, it is completely plausible that Toyota's presence in Texas comes as a net gain to all Texans, and the losers in this bribery are Californians, who have no standing in Texas courts.

Off the top of my head, I think a constitutional amendment imposing equal taxation upon all entities within a state would be a capital idea. Or, instead of that, why not a flat tax?

… so while the farmers have been slow to buy, even if they all finally decide to buy one (which should be a no-brainer since the payback is about 6 months or less)?

If the payback happens so quickly, why aren't they fighting for first place in the queue? (Honest question — even a 5 year payback would seem sufficient justification.)

Clovis e Adri said...

Bret,

---
It's a matter of cost and response time. We will of course have regional reps, but it's much easier to support them and cheaper to get there if they're closer.
---
Can you comment more on that? How robust are the machines? Do you need to have someone from your company around always, in case they do not work as they should?

If I understand the concept, you only need the producers to plant their seeds in configurations that allow for the machine to pass around, is that right?

If that's all, and the machines can do the job in self-sufficient ways, the exportation should not be that big of a problem.

Harry Eagar said...

' If we were close to LAX, I could a lot more places direct. But from San Diego, there's always an intermediate stop which adds hours to the trip and money to the fare.'

20-some years ago, I went to a lecture by a bigtime San Jose venture capitalist who was going to tell us in Hawaii how to successfully start and manage a hgh-tech park.

His No. 1 requirement?

Be next to an Interstate interchange.

Bret said...

Clovis asks: "Do you need to have someone from your company around always, in case they do not work as they should?"

With the lettuce thinner, it was about a year from the time it was released to the time we finally managed to fix all the failure modes. In addition, over that same time period there were various enhancements that were needed/wanted by the growers.

During that period, it's very helpful to be near the customers.

Then, for new models/release and general testing, it's also important to be near where the corn is grown.

Bret said...

Hey Skipper: "If the payback happens so quickly, why aren't they fighting for first place in the queue?"

If I was able to guarantee such a payback, it would be an easier sell. And by guarantee, I mean refund the money for the machines, no questions asked, if the grower doesn't like them after six months. Or better yet, don't even bill them for the machines for six months.

Unfortunately, I don't have the resources to do that.

We're talking with investors to get those resources, but with a market of only 50 machines for North America, it's not a very enticing investment. We're trying to wrap that up with other markets (including export markets and other vegetables), but it's far from a slam dunk as far as being an investment typical VCs undertake.

Lastly, and part of the reason I can't guarantee the payback, is that if you use the machines incompetently, you can cause a lot of damage, either by improper maintenance, improper use, improper chemicals, using them in unsuitable conditions, etc. You can't just have a typical uneducated farm worker operate and maintain the machines. The people who own and use the machines are very good at that now and learned some of that by trial and error. Though the errors are documented, there are probably yet more ways to do things stupidly that we haven't figured out yet.

Typically, you want a fairly high level foreman to control 3 to 10 machines. 3 machines is a $500K investment, and even when colleagues who own the machines tell you it's a few month payback, that's a chunk of change for very conservative farmers.

Harry Eagar said...

Friend of mine advocated 'Joe Tech' instead of low tech ('Stuff Joe can do in his garage')

One item was a seed inoculator, to enhance self-fertilization of tropical food crops.

Ooops. Market failure.

Good idea, but, for example, just 4 machines would meet all the demand in Thailand.

American taxpayers paid for them.



Clovis e Adri said...

Bret,

---
We're talking with investors to get those resources, but with a market of only 50 machines for North America, it's not a very enticing investment.
---

You mean, 50 machines for California, not North America, right? I can't believe there are only 50 lettuce and grape farms producing in scales where the machine is useful. Not to mention other farm products you did not develop yet.

Anyway, thanks again for all the details. You run an interesting business for sure, even more because it has so much interface with research. Which, unfortunately, ends up being part of your problem in the moment, since you are trying to make money out of it while you still develop the product, as I understand.

Have you thought about chaning the model to a leasing-with-operatives? IOW, you would sell the service of doing the harvest in some medium or long term contract. Then you solve your problem of not being able to give six months of the machine for free: you give one or two only, delivering the whole thing (all the crop harvested) ready in the farmer's door.

You also solve the other problem of uneducated workers the machine wrecking the machine: you will yourself have your own workers operating them.

A third problem you would solve is that your process of information gathering to give a feedback for the development guys would be quite optmized too. Maybe it would accelerate the development of new products.

You would change from a company producing machines to a company delivering a service of which the machine is only part of it. Maybe it even has potential for higher profits.

erp said...

Harry, yes American taxpayers paid for them. and lots of other foolishness.

Exactly why the government should stick to their knitting.

Bret, Clovis had a good idea. Provide a service, rather than sell a machine or provide a trained operator to help new users get their employees up to speed for the first several months.

It seems you are so close to a real breakthrough, it would be a shame to stop now.

Bret said...

Clovis asks: "Have you thought about chaning the model to a leasing-with-operatives?"

Yes. We've been in discussions with 2 such groups so far (they basically provide manual thinning services now). However, that takes even more capital since there's no money up front (by definition). That may still happen.

Clovis wrote: "You mean, 50 machines for California, not North America, right?"

80% of lettuce in North America is grown in California, so more or less the same numbers either way.

There are about 200,000 acres of lettuce grown, each thinner handles 4,000 acres per year. That's 50 machines. That displaces about 5,000 workers.

Clovis e Adri said...

Bret,

---
There are about 200,000 acres of lettuce grown, each thinner handles 4,000 acres per year. That's 50 machines. That displaces about 5,000 workers.
---
Quite interesting.

Yet, considering the ramification to other products that you could make in the long term, you would still have potential market for hundreds of those machines. Considering exportation, a few other hundreds may come too.

The good side of having such cap on being a few hundreds machine company, is that it is easier to manage and improve/diversify products, and if the market ends up accepting them well, you become an important piece of a most basic part of the economy (people will always need to eat).

Were I rich, I would invest in your company and follow it very closely to see its developments. It has great potential for creating products in other areas too, robots will only get more ubiquitous.

erp said...

Bret, approx. how much investment would you need to get you started?

Bret said...

erp,

I can't really disclose specific investment numbers unless and until we make a business plan with its associated prospectus public.

At the moment, we have a variety of versions of business plans with different funding levels, being tailored to specific investors.

erp said...

Bret, I don't mean to pry. Only idle curiosity.

Harry Eagar said...

'Exactly why the government should stick to their knitting.'

Why?

It is not something they could do for themselves and (see Bret's woes) not something the market could ever do.

Do you think it is a bad idea for poor people to be able to eat more and better food raised at cheaper cost?

I am sure you do.

erp said...

The government has spent several trillions of our dollars making things worse for everyone in the country except their fascist crony capitalists. As collateral damage, they have made the world a far more dangerous divided place and another world war a possibility and even a probability.

Sticking to their knitting means taking care of their constitutional duties and letting us get on with our lives.

Harry Eagar said...

erp, when do you imagine the seed inoculators were built for Thailand?

It was during the Reagan administration.

erp said...

Harry, I missed you. You make other lefties I know sound almost rational.

Harry Eagar said...

Don't duck the issue, erp. It was Reagan, using a program started by Eisenhower.

We can count on you to blame Obama for everything, though, even if it happened when he was still in grammar school in Java.