Len Boselovic's Heard Off the Street: Don’t jump to conclusions on GE’s moves

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Cynics will find some irony in General Electric’s decision to sell its appliance business.

They will point to glowing write-ups in the Harvard Business Review, The Atlantic and elsewhere praising the company’s bold decision to invest in its Louisville, Ky., plant and reach some elementary conclusions about the gap between what GE says and what GE does.

On the surface, it looks like someone putting the house up for sale after updating the master bath and kitchen.

Before jumping to any conclusions about what General Electric’s decision says about what some are calling an American manufacturing renaissance, consider what GE’s competitors in the appliance business are doing.

In December, Whirlpool announced it was moving production of its commercial, front-loading washing machines from Mexico to Clyde, Ohio, site of the world’s largest washing machine plant. Three months later, the Benton Harbor, Mich.-based appliance maker announced plans to invest $40 million at its Greenville, Ohio, plant, which makes KitchenAid mixers, hand mixers and blenders. The investment will nearly double the size of the plant, and Whirlpool expects it will create 400 jobs by 2018.

Swedish appliance maker Electrolux, which is interested in acquiring GE’s appliance business, is also investing in U.S. plants. It announced a $30 million investment in May at a refrigerator plant in Anderson, S.C.

Praise for what General Electric did in Louisville overlooked the fact that the company has been trying to sell the appliance unit for some time, most recently in 2008. Those plans were torpedoed by the recession. But investments in the unit since then have made it possible for GE to divest the business and focus on its higher-profit industrial equipment businesses, like making jet engines.

“The success of reshoring has enabled the sale,” said Harry Moser, a former manufacturing executive and founder of The Reshoring Institute. “The fact that the suitors are doing the same thing is a sign that it isn’t a failure.”

The industry-led group helps U.S. companies understand the potential savings in bringing manufacturing jobs back to the United States from supposedly lower-cost countries. The growing U.S. advantage over China and some other countries perceived to be low-cost locations has been documented by the Boston Consulting Group. The firm says escalating wage costs in China and lower energy prices from the U.S. energy boom have prompted about 300 manufacturers to bring jobs home from overseas.

Those business include appliance makers, who have several good reasons to make things here, said Harold Sirkin, a senior partner with Boston Consulting. Those advantages include a more productive workforce and the costs associated with making big, bulky products in one corner of the globe, shipping them to another, and hoping they aren’t damaged in between, he said.

“It just makes sense. You don’t have to pay all those transportation costs and you don’t have all those risks,” Mr. Sirkin said.

According to one of its competitors, reshoring also makes sense in the lighting business, a unit GE won’t be selling.

Independence LED Lighting in Wayne, Delaware County, moved production of light-emitting diode tubes and fixtures from China to Boyertown, Berks County, a few years ago. Since then, quality has improved significantly, allowing the company to increase its warranty from five to 10 years, according to CEO Charlie Szoradi. He also said it made sense to put production in the middle of one of the world’s biggest markets for lighting.

“It seems crazy for a country of 300 million people not to make a percentage of the things we use in the place we live,” Mr. Szoradi said. “By not making things, we are losing the mojo of innovation.”

Alan Tonelson believes there’s less to the manufacturing renaissance than meets the eye. He points to lackluster manufacturing wages. Adjusted for inflation, they have fallen eight times faster than private-sector wages since the recovery began in mid-2009, said Mr. Tonelson, whose RealityChek blog comments on trade, economics and related issues.

“Even worse, automotive wages are down about two-and-a-half times faster than that,” he said.

Concessions that unions granted to save the auto industry tell some of that story. But Mr. Tonelson points to the fact much of the auto industry’s resurgence involves U.S. workers assembling parts made overseas. Assembly jobs generally do not pay as much as more demanding manufacturing jobs and therefore “don’t add as much wealth to the economy,” he said.

There’s no doubt American workers need every job the economy can generate. But, just as manufacturers who are reshoring discovered, quality can be more important than quantity.

“The tale of the conversation has to be what kinds of jobs are created,” Mr. Szoradi said.

Len Boselovic: 412-263-1941 or lboselovic@post-gazette.com

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