Haier Group’s acquisition of General Electric’s appliance division will have little impact on the Louisville operations in the short-term, a local professor said.
Haier’s history and build-local approach bodes well for GE’s 6,000 local employees, said Beth Davis-Sramek, associate professor and Dean’s Research Scholar at the University of Louisville’s College of Business.
However, she said questions remain about Haier’s ownership structure, about the American public’s perception of the deal, and about Haier’s continued investments in Louisville’s Appliance Park.
Company and union officials and Louisville Mayor Greg Fischer said the deal would benefit the city, the local appliance campus and the employees, and opens opportunities for Louisville-made products to be exported.
Haier Group, which recorded global revenues of $32.6 billion and profits of $2.4 billion in 2014, had the highest global market share in appliances that year, with 10.2 percent, according to market research firm Euromonitor.
GE, which has been trying to sell the appliance business because it is not part of what it considers its core business, in December terminated an agreement to sell the unit to Sweden-based AB Electrolux. Federal regulators had sued to stop the $3.3 billion acquisition because they feared a loss of competition and higher prices in the appliance industry.
Davis-Sramek said that given the feds’ pushback, GE had to find a buyer without a big U.S. presence but with deep enough pockets – and not many of those exist.
“I think from GE’s standpoint (selling to Haier) made a lot of sense,” she said.
In the short-term, the local operations will continue uninterrupted, and the deal brings employees stability, Davis-Sramek said.
Once the acquisition is completed, which is expected in the second half of this year, and the local labor contract is renegotiated, it would behoove Haier to avoid any big labor disputes right away, she said.
American consumers in social media have reacted very negatively to a Chinese corporation acquiring an iconic American brand, Davis-Sramek said, and a big labor dispute will only reinforce people’s concerns.
Haier’s limited presence in the U.S. also means the new owners cannot simply consolidate local manufacturing operations with those in another U.S. location.
“They need the manufacturing capabilities here,” Davis-Sramek said.
Long-term impact uncertain
At the end of this year, GE will have invested about $1 billion in Appliance Park in the last five years. The company has moved manufacturing of some products, including a water heater and air conditioner, from China back to the U.S.
Whether Haier will continue to invest in the Louisville campus is difficult to predict, because those decisions are affected by a lot of variables, including the company’s growth strategy, economic growth in the U.S. and in China, energy costs, etc., Davis-Sramek said.
She also said Haier’s move reflected Chinese companies’ increasing interest to expand outside of their homeland as the economy there slows.
Three large deals involving Chinese companies making acquisitions in the U.S. and Germany were announced last week alone, the Associated Press reported.
So long as the Chinese middle class grew, Chinese companies, including Haier, were doing well, Davis-Sramek said. The middle class wanted cars, homes and appliances. Now that the growth has slowed, Chinese companies have to look elsewhere if they want to continue to see robust growth.
In 2005, Haier tried to buy Maytag, which was acquired by Whirlpool, so for Haier it made a lot of sense to go after GE’s appliances business, she said. Even before the acquisition, Haier had been working on developing and manufacturing appliances for the American market.
With this one acquisition, Haier has gained design and manufacturing expertise and, she said, even more important, an iconic global brand.
“From Haier’s perspective, it was brilliant.”