Locomotives, pickles and coffee: all share one story

Recently I was told concerning the EMD lockout:

"For all the union bluster and condemnation about the enormous greed of Caterpillar, it is doing what all large corporations are required to do in law: act in their own self interest."

Well, that explains the recent pull-out of Bick's from Ontario by Smucker, the American owner. They didn't willingly choose this move, so destructive to the people of Dunnville, their hands were tied. They were only doing what is required in law. (What bunkum!)

Ontario tried coaxing the pickle company to stay in the province with sweet words made even sweeter by a $2.2 million Rural Economic Development (RED) grant. Smucker nibbled but didn't bite. They returned all the funds initially accepted and declined the remainder. They closed the Dunnville plant leaving up to 150 fulltime factory workers, 70 part-time staff, plus some seasonal workers out of jobs. Also affected were hundreds of area farmers and a state-of-the-art tank farm in Delhi.

According to Toby Barrett, MPP Haldimand-Norfolk, this was the last major industry in Dunnville. In the future, all Bick’s pickled products will be packed by unnamed “third-party manufacturers” and in expanded Smucker factories in Ripon, Wisconsin and Orrville, Ohio. All agricultural support moves to the States in 2012.

The National Post reports:

Bick's was founded in 1944 by Walter Bick, a young German Jew, 27, who had fled Europe just ahead of the Second World War. Walter and his wife Jeanny sold barrels of pickles to restaurants and army camps in the Toronto area before moving into retail in 1952. The company was sold to Robin Hood Flour in 1966. Robin Hood was taken over by Smucker in 2006.

"The plant closing has struck a sour note with former Bick’s employees. 'Americans come to Canada, buy a Canadian company, close it, and move it to the U.S.A. Shop for other brands, don’t help them screw us over,' reads a statement on Boycott Bick’s Pickles, a Facebook page created by disaffected former Bick’s employees."

The Electro-Motive Diesel lockout is grave but the story is not unique. I doubt it will be solved by the intervention of any well-meaning negotiators. I have watched this tale unfold in various permutations over and over, and not just in Ontario. Thanks to Google, I know that the story is even unfolding in Orrville, Ohio. Now, that's a surprise.

Orrville, Ohio has an expanded Smucker plant which replaced a 60-year-old facility, but the ''new technologies and efficiency improvements" results in more product being made by fewer people. Millions in capital investment eliminated 180 jobs or 40% of the Orrville work force. As production is ramped up at the modern plant through the summer of 2013, facilities in Memphis with 161 employees and in Quebec with 101 employees will be closed.

Robin Hood Flour and Bick's are not the only well-known brands to have been assimilated into the Smucker fold. Since 2001, Smucker has acquired Folgers coffee along with food brands Jif, Crisco, Pillsbury, Hungry Jack, Eagle Brand condensed milk and Europe's Best Inc., a private company headquartered in Montreal. (I've noticed that some of Europe's Best is packaged in China.)

Unfortunately, growing the brand has meant shrinking the jobs. Take Folgers. Smucker acquired the coffee company from Cincinnati-based Procter & Gamble in 2008 for $3.3 billion. By 2011 the phase out of the Folgers Kansas City operation, with more than a hundred years of history and 179 employees and its Sherman plant with 95 jobs, was underway.

Missouri state Rep. Mike Talboy called the closings "extremely unfortunate" and said he hoped Folgers would reconsider. Talboy said he'd be working with the Missouri Department of Economic Development to see if there's anything that can be done to keep the plant open and keep the jobs in Kansas City. "I'm going to do everything I can to protect Kansas City jobs," Talboy said.

More nice thoughts. Nice thoughts by politicians, union leaders and newspaper columnists seem to surround and cushion these closures. As I wrote in my last post, folk like these should hold onto their nice thoughts, and they don't have to hold on too tightly. Those thoughts aren't going anywhere.

The Folgers KC closing also is accompanied by its own Facebook page.

EMD CEO's talk fails to mention London

"Money-losing" EMD expanded operations in China. Progress Rail CEO Billy Ainsworth shown.

Recently, I saw this tweet on Twitter:

Here's a link to The London Free Press column.

It's a nice thought. Larry Cornies, and others like him, should hold onto such nice thoughts, but they don't have to hold on too tightly. Those thoughts, and others like them, aren't going anywhere soon.

Maybe my expectations in situations like the EMD lockout have been soured by own experience working for a big, anti-union business – Quebecor – but I don't believe the Caterpillar representatives want to sit down with the London workers.

The Cornies tweet was followed by one by late2game pointing out that although Caterpillar is well into the black as a corporation, its EMD subsidiary is a drain on the big Cat. Late2game linked to a source reporting EMD lost $16 million. Cornies replied to late2game: "Thanks; that's detail I was looking for before deadline Thursday, but couldn't find. Confirms my suspicions."

In a lockout situation, I have a hard time confirming anything in my own mind. I'm very distrustful of everyone involved. I'm especially distrustful of all the facts surrounding the crisis. The bargaining is no longer being done at the table but on the street, in the media.

As a long time investor, I'm well aware that money losing companies can be damn fine investments. I'm not saying the books are cooked, they aren't, but the bottom line is not the whole story. If a company is investing a lot of money to grow future profits, the present may suffer. This does not mean the company is in trouble, especially if it is a subsidiary of a much larger company – one with very deep pockets, like Caterpillar.

John Hamilton, Electro-Motive Diesel CEO, has made great strides in growing the once faltering operation. I don't believe that EMD, once the little engine that could, is now the little engine that couldn't (turn a profit).

In London, we like to think of EMD as having its headquarters and some production facilities in La Grange, Illinois and its assembly plant in London, Ontario – and that's it. Well, a few years ago that was sort of true, but not today. (The production is actually in McCook, Illinois, just outside of La Grange.)

Today's EMD is not the company it was when it opened its London, Ontario, plant. EMD today:

• has opened a 740,000 sq. ft. assembly plant in Muncie, Indiana – that's far larger than the older, London, Ontario EMD facility.
• is expanding and modernizing an existing manufacturing plant in Sete Lagoas, Minas Gerais, Brazil to assemble and manufacture Electro-Motive Diesel-branded locomotives
• is producing EMD labelled locomotives at the Ciudad Sahagún Bombardier plant in Mexico.
• is hoping to produce locomotives in the near future in India.
• has opened a facility in San Luis Potosi, Mexico for traction motor maintenance and locomotive overhaul work.
• is opening multiple warehouse operations in northeastern China supporting a growing fleet of 6000-horsepower EMD. The complete assembly of locomotives for the Chinese market is envisioned.
• and the list goes on

According to the Wall Street Journal, EMD recorded $1.8 billion in global sales in 2008-09, making it one of the largest builders of diesel-electric locomotives in the world. Is EMD losing money? If it is, the management of EMD is incompetent and I don't think EMD management is incompetent. I doubt EMD is in financial trouble. The red $16 million dollar bottom-line number is nothing to be concerned about.

When EMD president and CEO John S. Hamilton appeared before the House Transportation and Infrastructure Subcommittee on Railroads, Pipelines, and Hazardous Materials Hearing, on April 20, 2010, he bragged a great deal but he never got around to mentioning London.

"EMD was a floundering subsidiary of GM, with a very questionable future. Today, EMD has witnessed record revenues, earnings, and investments. Exports have doubled. Factory productivity is up 20 percent," he boasted.

He continued, "Over the last two years, our exports to India and China were over 50 times greater than our imports from those two countries. Few, if any, large heavy manufacturing companies can say that. We estimate that in our five years as an independent company, we have single-handedly improved the United States trade balance by $200M."

"We employ 1,600 workers in the U.S.," he said.

Concerning high speed rail, he said, if given the chance EMD "would make most all of the critical technologies [in McCook, Illinois]. We have the equipment. We have 1,600 American workers ready to do this work and we would recall workers currently on lay-off to meet the additional workload. In accordance with Buy America, we announced last week a search for a facility in which to perform final assembly. [This would be the Muncie plant that is now in limited operation.]

EMD is a company on the move. And everything indicates that their next big move will be to move out of London. [Shortly after writing this, Progress Rail and EMD announced the closure of the London plant. EMD moved out of London.]

Buy America Act

The Buy America Act was a provision of the Surface Transportation Assistance Act of 1982 and is now codified by Section 5323(j) of Title 49 of the United States Code. Buy America provisions are applied to transit-related procurements valued over US$100,000, for which funding includes grants administered by the Federal Transit Authority (FTA) or Federal Highway Administration (FHWA). Buy America provisions are a condition of U.S. federal government grants to state, municipal or other organizations including transit authorities. Buy America provisions, such as requirements for 100% U.S. content for iron/steel and manufactured products, put Canadian goods and services at a serious disadvantage when they form all or part of a bid by any supplier, whether U.S. or Canadian. Similar conditions prevail for airport projects that receive funds from the Federal Aviation Administration as authorized by the Airport and Airways Facilities Improvement Act. Such projects require that all steel and manufactured products have 60% U.S. content and that final assembly occur in the United States.

Note: Under NAFTA, the U.S. requires that Canadian goods and suppliers be exempt from these requirements if certain demands are met. That said, applying the exemptions can be messy and convoluted. Don't think for a minute that NAFTA provides simple protection for producers such as Electro Motive Diesel in London.

The Apple didn't fall far from the tree

I read an interesting claim in today's paper by columnist Larry Cornies. Cornies was praising Mayor Joe Fontana's state-of-the-city address. With an attendance of about 1200, it is said to be the largest address of its kind by any mayor in any city in Canada.

Cornies reports Fontana said, "London's greatest assets . . . remain its people." No argument there. The LFP columnist expands on this thought, pointing out:

"Apple didn't locate in Cupertino, Calif., nor Research in Motion in Waterloo because of geographic location or persuasive politicians. They located there because that's where the ideas and human capacity were."

Whoa! I thought Apple is where it is because it founders had roots in the town. If you think about it, it only makes sense. You found a company where you are, not where you aren't.

Check out the map of Cupertino. Note where Steve Jobs grew up. Now, check the location of the Apple complex. You could walk from one to the other; The distance is less than 3 miles. One can drive from one to the other in seven minutes. If you don't want to take the freeway, it's about a ten minutes.

One can walk from Steve Job's boyhood home to the Apple Inc. complex.

According to an article in Time magazine, "Jobs led the world into the computing era, but physically, he rarely left a 20-mile radius that centered around his boyhood home."

RIM is a different story. Jim Balsillie comes from Seaforth, Ontario, while Mike Lazaridis was born in Turkey. Lazaridis's family moved to Canada when he was five, settling in Windsor, Ontario.

Before writing more on RIM, let's look at another famous company: the Ford Motor Company.

The Ford Motor Company was founded by Henry Ford, born on a farm near Dearborn, Michigan nine miles west of Detroit. He died 83 years later at his Fairlane estate not far from his place of birth. To this day, the FoMoCo head office is located in Dearborn.

I was going to play this listing game for awhile but a pattern quickly appeared. In the past, businesses were founded where their founders lived, often where they founders were born.

With the death of the the entrepreneurial owner, businesses are often cut loose, purchased by money from outside the community they shrink, or even close. They move away. They cease to play a major role in the city of their birth.

Think: McClary Appliances, London Life, The London Free Press, McCormicks bakery, etc.

If you'd like a smaller, less famous name for the list, try Vytec. It was founded in 1962 by London businessperson Andy Spriet but was owned by the French manufacturing giant Saint Gobain when it was closed. The production moved to the U.S.

My Medtronic ICD heart monitor is made in China.

Skilled workers be damned. In truth, skilled workers are a dime-a-dozen (almost), if you are willing to relocate offshore.

I've written a couple of posts on this: Not made in London, Ontario and The Forest City: A rich past of fading memories.

Now, back to RIM. As I said, neither Balsillie nor Lazaridis was born, or even raised, in Waterloo. There are a number of reasons why Waterloo, Ontario was a good place for RIM to locate and the availability of folk with the prerequisite skills was certainly one of them.

That said, there is an interesting post by Ben Spigel: The future of RIM and the future of Waterloo. Spigel tells us that his PhD dissertation focused on the local social and cultural factors underpinning high-tech entrepreneurship in Canada. Spigel interviewed dozens of entrepreneurs in Waterloo, with a specific focus on their relationship to RIM.

The quality of the workforce played a big role in attracting RIM to Waterloo, but what will happen if RIM continues its decline. According to Spigel, if RIM has large layoffs of highly skilled developers and engineers, the majority will find other jobs in the Waterloo region. Google, Microsoft and the rest would love to scoop up RIM talent for their mobile divisions. Of course, some of the younger and unattached individuals will leave for greener pastures: Toronto, Vancouver, Montreal, San Francisco, Boston . . . . This will be a big loss for the community.

Spigel argues that today it is RIM and not the University of Waterloo that is the main reason for Waterloo being synonymous with high-tech. Spigel tells us:

"If RIM continues its decline and becomes a mere Nokia or Motorola, Waterloo’s image will be tarnished. If RIM can no longer take on the cream of UW’s co-op crop, Waterloo’s imagine will decline and fewer of the world’s best computer scientists will come to the city."

Skilled workers capable of performing many jobs are available all over the planet. Let's take another look at Cornies' Apple example. According to a story carried by PR Newswire:

"Apple sold 4.86 million Apple II computers from 1977 to 1984, all made in the United States.  Then Apple introduced the MacIntosh, still one of the top-selling computers in the world.  Apple sold 13.7 million Macs in 2010.

According to the New York Times, Apple's plant in Fremont, Calif., was producing 1,500 MacIntosh computers a day in 1984. Apple made about 1 million Macs in 1985 at its Fremont plant.  According to the Los Angeles Times, Apple closed its Fremont plant in 1992 and shifted production to Sacramento, Colorado, Singapore and Ireland.  The Fremont plant had a remarkable eight-year run.

Apple increased its outsourcing overseas when Jobs returned to the company as CEO in 1998.  In 2004 Apple closed its manufacturing plant in Elk Grove, California.  Now no Apple computers, iPhones, iPods or iPads are made in the United States.

Forbes reports that Apple has one of the highest profit margins of any corporation, 41.4%.  The primary reason for this is outsourcing to China where workers are paid 15 or 20 cents per hour. Apple amassed a cash hoard of $76 billion, more than the U.S. Treasury had on hand in July of this year, according to Fortune magazine."

So, what is the biggest draw for a company today? Profit margins.

Don't believe me? Just ask the locked out workers at the Electro-Motive Canada plant in London. Oddly enough, the workers at the EMD plant in Muncie, where it is feared the London locomotive work may be transferred, might also agree. When they head home from work, it is reported that they head straight home. They are unable to afford to stop at the local bar for a draft with their co-workers.

There's a lot of stuff that drops by the wayside when you make only $12.50 an hour — like one's self esteem.

Are London EMD workers facing a Hobson's choice?

Are the locked out EMD workers facing a Hobson's choice?

The London Free Press reporter Scott Taylor reported in the Thursday paper that the lock out at the Electro-Motive plant in London is a local conflict with global causes. The reporter quotes Anil Verma of the University of Toronto's Rotman School of Management to back up this position. "Workers in China can make locomotives as well as they can here, so they're now facing the competition," the university expert told the paper.

I was puzzled. The threat facing the London jobs comes from Muncie, Indiana. The last time I checked Muncie was in the United States and not China. In the expert's defence, my guess is he was given a cold call by the reporter and the professor gave the caller his generic response.

Still, the paper reported Professor Verma "Thinks a deal can be reached . . . " Why? How? I was puzzled. I have been working on a piece of the Digital Journal, so I decided to give the professor a call. It turns out that he is in Chicago at a conference and unavailable until next week for an interview. But, he graciously sent a brief response to my e-mail.

Anil Verma wrote:

"You are probably right in terms of the immediate threat. I referred to China as competition, in general, for a wide range of manufacturing jobs. I do not know enough about EMD's specific competitive position in the industry in terms of costs, productivity, quality, etc."

I was right. He was called cold, given little background to the story, and being a gracious gentleman, he gave the reporter his generic China response.

Allow me to examine the the threat of closure facing the London EMD plant. A lot of stuff going into locomotives assembled in London originates in McCook, Illinois, located just outside La Grange where the EMD head office is located. The parts are shipped about 685 km from McCook to London, crossing the Canada/US border at one point. It is about an eight hour trip by truck — an expensive eight hour, international trip at today's exchange rate.

Progress Rail Manufacturing Corporation, a totally owned subsidiary of Progress Rail Services, now has a plant in Muncie, Indiana, less than 400 km and four and a half hours, from McCook. The Muncie plant, originally built by Westinghouse, then purchased by Asea Brown Bovery (ABB), has been rebuilt as a locomotive assembly plant at a cost of $50 million.

The 740,000 sq. ft. plant is massive with a main floor 1,960-feet in length, a 99-foot ceiling in the former transformer assembly area and locomotive-sized entry doors with railway tracks running through the building. It took only a year after its purchase for Progress Rail to hold the plant's opening ceremony.

Like London, a lot of what goes into the Muncie produced locomotives originates in La Grange, Illinois.  Unlike London, the Muncie workers are non-union, always a plus in the Caterpillar/Progress Rail playbook. Recently, Progress Rail posted a job opening for an HR Manager at its new Indiana assembly plant, they stipulated that the candidate should have "experience with providing union-free culture and union avoidance." The job is now filled but the union avoidance line is still shown on the online posting as I write this.

Welding jobs at the new facility are reportedly paying from $12-$14 an hour. Do the math. That's $24,960 annually to start for a 40-hour work week. This places these workers squarely in the ranks of the working  poor. There are a lot of working poor in Indiana according to The Working Poor Families Project.

Glassdoor, a site for employment information in the States, carries this comment:

"For a company [Progress Rail Services] that says that safety is number 1, they don't practice that. Employees are treated like dirt; both in pay and the softer sides unless you are a YES man. Unfair and inconsistent discipline and promotions, confidentiality is breached on a daily basis, safe work practices are bypassed in the interest of more and faster production, very little integrity in local management." 

Why should the London workers be concerned about China when they've got Indiana? Companies like Progress Rail and its parent, Caterpillar, don't have to go to the third world, they bring the third world to North America. David Olive, of The Toronto Star, looked at this development in an article: America, the world's sweatshop.

Welders in London make a living wage of about $35 an hour. It's good money and a lot of it stays in the community. It is good for the worker and good for the community. And in return, the company gets good work  — excellent work in fact.

This doesn't mean that Progress Rail, and EMD before it, is not taking advantage of what the third world has to offer. At least as early as 1998 EMD was working closely with Bombardier in Mexico. Recently, the first order of 32 EMD diesel-electric locomotives was assembled under contract at the Ciudad Sahagún Bombardier plant, Mexico. Progress Rail (South America) also has a new facility in Sete Lagoas, Minas Gerais, Brazil.

Before Progress Rail and its parent Caterpillar Inc. came on the scene and purchased the entire EMD operation in 2010, most (but not all) EMD locomotives were assembled in London, Ontario in one plant approximately two thirds the size of the refurbished facility opened in Muncie. Some limited EMD assembly and painting was done by SuperSteel Schenectady, Inc. (SSSI), Glenville, N.Y., and, as mentioned earlier, by Bombardier in Mexico. Sometimes, after assembly at SSSI, some locomotives were sent to Alstom in Hornell, N.Y., for finishing and final paint. I have heard reports, see comments after this story, that some work might have also been done in St. Catharines.

With so many plants available for locomotive assembly, why was an entirely new plant created in Muncie?  — a plant with a much larger floor area than the one in London and with a proposed staff, when fully operational, approximately the same size as London's? Well, for one thing, the SSSI factory which produced everything from streetcar shells to locomotives was shut down in 2008. The SSSI closure underlined the need for a U.S. assembly plant to meet the made in America demands. I believe the new Muncie plant was designed right from the start to replace the London operation.

I fear that the EMD/Progress Rail/Caterpillar hierarchy of companies extended the contract in London in order to buy time to get the plant in Muncie operational. Remember, if problems should arise at Muncie, Progress Rail does have options when it comes to assembly and painting of new locomotives.

If the London workers don't accept the pay cut and the present lock out begins to hurt the company's bottom line, maybe the company will fold their hand and shelve demands that would not look out of plane in a book by Charles Dickens. But, I doubt it. What ever happens,  when Muncie is up and running, backed by a plant in Mexico, I believe the London facility will be shuttered.

If  the workers take the pay cut, they will return to work but their lives will be in tatters. Mortgage payments, car payments, monthly food bills, possibly tuition for children in university, all will take massive chunks out of their vastly shrunken family budgets. I predict marriages will fail under the stress. After earning a decent wage for years, it will be economic hell for the EMD workers.

I see the London EMD workers facing a Hobson's choice. No matter what decision the locked out workers make, in the end they will find themselves out of a job.

Locomotives: They're big, expensive and U.S. workers build 'em for $12.00 / hr. and up.

Addendum: This report reflects a correction sent anonymously. The correction can be seen in the comment section.