Today, Nissan (Nasdaq: NSANY) announced that it would be moving its North American headquarters from the Los Angeles area to the Nashville area in Tennessee. It's causing a stir, as well as speculation that other SoCal-headquartered carmakers such as Honda (NYSE: HMC) might also move.
I'm not sure how well-founded that speculation is. It's easy to see why Nissan, an underdog, headed by a noted cost-cutter, would make the hard decision, while Honda might be more willing to absorb the higher costs of operating in sunny California.
On that front, California's Governator, Arnold Schwarzenegger, blamed the state's tax code and business laws for the exodus. I'm not going to try and claim California isn't crazy (I have friends who live there), but I suspect there's a lot more at play here than tax breaks could fix.
Last week, I came across several articles all highlighting the recent flight of families from California. (Oddly enough, many seemed to be landing in Missouri. Don't get me wrong: I like Missouri, but I still find it odd.) The reason these families were moving had nothing to do with taxes. It was all about housing price inflation and the quality of life. The phrase that stuck with me was a line from someone who decided that it didn't make sense to pay half a million dollars for a home in a new tract suburb in the desert, with three hours of driving every day.
According to data I've seen, that's no exaggeration. The median home price in the Los Angeles area is about $500,000, and I really doubt that executives at a car company will put up with what the median will buy. Around Nashville, the median home is more like $160,000. If you were paying people the money they use to pay for houses, you tell me where you'd rather locate them.
A company I own and have written about, Ceradyne (Nasdaq: CRDN), opened its newest ceramics facility in Kentucky -- one of the primary reasons being to save money on electricity, which is a major component of its cost of goods sold, what with the long, high-temperature baking and all that. And that's not the only reason California simply doesn't cut it.
There's only so much of California available, and people are paying an awful lot to buy the remaining chunks, or pay for gas to drive on the remaining chunks, or pay for groceries located close to their little slice of the remaining chunks. When everyone wants to live in the same place, all the prices go up.
As for what to make of the exodus -- if indeed it exists -- it's just more proof that although it might be painful in the short run, the system works. When stuff gets too expensive, we look for alternatives. Where did Motley Fool Stock Advisor pick Dell (Nasdaq: DELL), which has long avoided the lure of both L.A. and Silicon Valley, build its newest low-cost plant? North Carolina.
And if prices keep ballooning in California, I'd expect to see others making some moves as well. What good are tax breaks or other financial incentives when companies are forced to turn around and raise salaries and benefits, plus turn on the old options printing press, in order to keep up with overheated costs of living? Why should tech stars like Cisco (Nasdaq: CSCO) or Juniper Networks (Nasdaq: JNPR), who make their living promoting connectivity from everywhere, keep their staff tied to the most overpriced real estate in America?
Around here, Juniper runs some pretty amusing newspaper ads -- featuring commuters portrayed as trapped rats during rush hour -- about cost and frustration savings achievable by using its products for telecommuting. How about all those companies selling us the Internet Utopia make better use of it to put more money in shareholders' pockets? Maybe it's time the owners of all these firms -- that's you and I, Fool, with our little stubs of paper -- demand that they say farewell to the California dream and its nightmarish costs.
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Seth Jayson thinks every company he owns should move its headquarters to Palo, Minn. At the time of publication, he had shares of Ceradyne but no position in any other company mentioned. View his stock holdings and Fool profile here.
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