GE said Appliance Park is losing money and workers are earning much more than typical in the appliance industry — but a union leader said the company is merely trying to intimidate workers ahead of contract talks, which are set to begin Monday.
About 4,000 of the park’s 6,000 workers are covered by a union contract that was reached when GE Appliances was still part of General Electric Co. The appliances unit was sold in June to China-based appliance maker Qingdao Haier for $5.4 billion.
GE Appliances leaders have identified work practices, health care costs and wages as potential cost-cutting areas, but the union believes wage and benefit cuts would hurt the operation’s performance in the long run.
Company spokeswoman Kim Freeman told IL Friday that GE Appliance Park is the sole North American manufacturing site among the company’s four that is not profitable.
Freeman said the company’s production sites in LaFayette, Ga.; Decatur, Ala.; and Selmer, Tenn., are profitable — while the Louisville operations are not. Some parts of Appliance Park generate a profit, but as a whole, the park operates at a loss. Freeman said that for competitive reasons, she could not talk about the depth of the loss.
The loss of the corporate parent, GE, is posing challenges in part because higher profit margins in other GE divisions helped prop up the high-volume, low-margin appliance business. It was one of the reasons GE got rid of the appliances unit.
GE’s gross margin last year — across the entire company — was about 27 percent, or about 10 percentage points higher than appliance makers Whirlpool and Electrolux, according to company filings. Without GE’s financial clout, the appliance unit’s lower margins are putting pressure on employee compensation and prices.
“We can’t ride GE’s coattails anymore,” Freeman said.
Without GE, she said, the appliance business has to stand alone and compete against lots of brands, including Whirlpool, Samsung, LG and Electrolux.
“It’s low margins, and it’s a crowded and competitive field,” Freeman said. “We need to make some changes so that we are better positioned to compete and win in the marketplace.”
To do that, every plant and every product has to produce a profit, she said.
The company said wages for production workers at Appliance Park “are significantly higher than those of its competitors, and the business’ pay practices are not in line with market realities.”
Freeman said the company plans to share information on the average industry wage with the union — but not with the public.
The starting wage at Appliance Park is $15.51, but Freeman said experienced employees in skilled trades make twice as much.
Cutting wages might be difficult: A UofL professor has told IL that as much as Haier may want to align wages of local workers with the rest of the appliance industry, its wiggle room is confined by the compensation packages offered by other Louisville manufacturers with which GE competes for workers.
GE leaders already have said they’re struggling to find qualified employees. Chip Blankenship, the appliance division’s CEO, said last year that the local labor force shortage has reached a crisis level and is hampering economic growth.
While some labor force experts have told IL that the skills gap is, to a certain extent, a wage gap — meaning companies wouldn’t be struggling as much to find employees if they paid them more — Freeman said GE has come to a different conclusion:
“We don’t have enough people that are prepared to work in a manufacturing environment — regardless of what the wage structure is,” she said.
GE Appliances’ other North American locations are not represented by unions, but Freeman said “that has no bearing on our ability to be profitable at Appliance Park.
“We have a good relationship with our union and we will work together to develop a contract that will help both our employees and the business succeed,” she said.
Dana Crittenden, president of the IUE-CWA Local 83761, questioned the timing of the company’s comments, days before contract talks are set to begin, and told IL Saturday that executives are trying to scare workers into falling in line with company demands.
The union president said a comparison between wages at Appliance Park and other GE Appliances locations is unfair and immaterial, as different markets require different compensation because of various factors including the availability of labor and cost of living. Indeed, according to the Census Bureau, the median household income in Selmer is about $27,000 — or about $18,000 less than in Louisville.
GE Appliances in Louisville has to offer wages that are competitive in the local market — otherwise the company risks losing more employees and their expertise, which would result in significant training costs for new employees, Crittenden said. And losing experienced employees also will diminish product quality and, ultimately, sales, he said.
The union president also said that many workers have stood by the company through difficult and uncertain times. During the recession, for example, employees agreed to concessions including wage freezes. The employees worked hard to produce good appliances, and the company’s performance improved, as did its value: GE initially agreed to sell the appliance business for $3.3 billion to Sweden-based Electrolux. When that sale fell through, GE got $1.1 billion more from Haier.
Crittenden said he understands that efficiency needs to improve, but the company has plenty of other ways to achieve its goals without compromising the park’s long-term viability.
The union president suggested that the company could reduce its management ranks and transfer some of those duties to union leaders, who understand the business well. During the uncertain times, the company suffered from significant turnover in management, and many of the new managers seem intent on “reinventing the wheel,” Crittenden said.
Appliance Park could easily improve its performance, he said, if the company and union worked together to adopt some of the best practices that Haier has identified at its more than 100 manufacturing sites across the globe.
Health care, work practices
Freeman said the company paid $71 million in health care costs last year on Appliance Park workers and their families, or about $9,000 per person. The park has to produce about 290 dishwashers to pay for one person’s health care, she said.
With health care costs projected to increase about 6 percent annually, the company has to look at how it can offer a competitive benefits package while lowering health care costs, Freeman said. The company may propose that employees pay a larger share of the health care costs than before.
Crittenden said the company has to offer a benefits package that resembles those offered by other regional companies. If GE Appliances significantly increases the employees’ out-of-pocket health care costs, more employees will leave for other jobs.
The employees’ out-of-pocket costs already have risen because wages stagnated during the recession and because retirement and health care costs have risen, he said.
Freeman also said that some long-time practices are preventing the company from achieving greater efficiency. For example, she said, some contractual labor force mechanisms result in workers with greater overall experience being able to move into open positions and bumping younger workers who may have more experience for that open position — but less experience overall. That may require the company to spend time training both employees.
Those kinds of practices prevent the company and its employees from developing competencies in areas that are critical to the park’s success, Freeman said.
Making changes to those mechanisms will be difficult and unpopular, Crittenden said, because an employee whose seniority allows him to advance into an open position usually gets a pay bump and, potentially, a better work schedule. Allowing less experienced employees to move into such a job would be unfair to the more experienced worker, he said.
Freeman said the length of the new contract is one of the items the parties will be negotiating. The talks will include lawyers, about six representatives from GE Appliances, at least one from Haier and several from the unions. Freeman said she expects negotiations to conclude in about two months. Talks will be held at an undisclosed location.