GE Appliances leaders will have to walk a tightrope to retain talented workers while lowering costs to compete without the backing of corporate giant General Electric, according to a local professor.
Meanwhile, a local union leader said he expects the pending acquisition to produce few immediate effects on compensation and work at Appliance Park, where the company employs about 6,000. In fact, the union leader said, he sees opportunities for growth.
GE in January agreed to sell its appliances division to China-based Qingdao Haier for $5.4 billion. The unit’s headquarters will remain in Louisville, and the agreement calls for GE Appliances “to continue to market the current portfolio of GE brands for … 40 years.”
Local leaders, too, will remain; in previous acquisitions, Haier has taken a hands-off approach to allow local leaders to make decisions that best serve the market.
Union and company officials told IL that the deal is expected to be completed in early June. Members of the IUE-CWA Local 83761 will continue to work under the same conditions, compensation and benefits for 12 months, while the union and the company negotiate a new contract.
The loss of the corporate parent, GE, will pose challenges in part because the appliance division’s profit margin lags behind many other GE divisions. It’s one of the reasons why GE has been trying to shed the appliance business: Appliances are a high volume, low margin business.
GE’s gross margin last year — across the entire company — was about 27 percent, or about 10 percentage points higher than appliance companies Whirlpool and Electrolux. Without GE’s financial clout, the appliance unit’s lower margins could put pressure on employee compensation and prices.
The new GE Appliances division will have to manage its costs and keep margins competitive, said Beth Davis-Sramek, associate professor and Dean’s Research Scholar at the University of Louisville’s College of Business.
But, she said, company leaders are not making decisions about appliance prices or worker pay in a vacuum.
“They can’t charge $100 more for a dryer because it says GE on it,” she said. “They’ve got to be competitive with Whirlpool and Electrolux … and some of these new players.”
Labor expenses might look like an easy place to start cutting costs, Davis-Sramek said, but Haier is facing pressures from a tight local labor market.
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 local manufacturers with which GE competes for workers.
“Ford already pays more, so they’ve got to balance their cost structure with also making sure that they can compete in terms of attracting and retaining the labor force,” Davis-Sramek said. “That’s a balancing act for them.”
Local employers already are struggling to attract qualified workers, even at wages of $15 per hour. Chip Blankenship, the GE appliance division’s CEO, said last year that the local labor force shortage has reached a crisis level and is hampering economic growth.
It’s a classic dilemma, Davis-Sramek said: If Haier lowers workers’ compensation, the company might struggle even more to attract and retain talent, which ultimately could reduce productivity, innovation and quality, which could mean fewer customers. On the other hand, if Haier keeps labor costs where they are, it may have to raise prices on its products, which again involves the risk of losing customers.
Davis-Sramek said it would make more sense for Haier to find other ways to improve efficiency and productivity, by implementing more of the industry’s best practices, for example.
Union president: business as usual
Dana Crittenden, the president of the local union, said the tight local labor market will prevent Haier from lowering compensation.
To build high-quality products, the company will need experienced and capable workers and will have to offer compensation packages that are in line with what other regional employers provide, he said.
“I really don’t see wages being modified,” Crittenden said.
The union president said that ending the decades-long relationship with General Electric is bittersweet, but the community and workers likely will experience little change, at least initially.
The workers’ benefits and paychecks will be provided by someone else, Crittenden said, but the work will continue.
The day after the change of ownership, employees will come to work as usual. Appliances will be built as usual. And they will be shipped as usual, Crittenden said.
“We won’t see much change out here on the floor,” he said.
The appliances will continue to be branded “GE Appliances” — though they might also show something along the lines of “a division of Haier.”
Employees this month had to indicate their willingness to work for the new employer by not signing a letter of resignation they received. Crittenden said that two days before the deadline to resign, no employees had done so — except for one who signed the paperwork by mistake.
For at least a year after change of ownership, local employees will work under the existing contract. Any time you renegotiate, you hope to gain a little bit, Crittenden said.
Union leaders met with Haier officials a couple of months ago.
“They seemed very honored to have the opportunity to work with us and build appliances here,” Crittenden said.
He said Haier leaders already have addressed one of the union’s big concerns: The company will recognize employees’ seniority. If an employee has 15 years the day before Haier takes over, the employee will have 15 years the day after, Crittenden said. That’s critical for employees, because seniority affects job security and benefits such as vacation.
Haier’s leaders want to be in Louisville and make appliances, Crittenden said, but they also want to be profitable, which means the local employees have to continue to do good work and tackle challenges.
Crittenden, who has worked for GE for 23 years, said he plans to take a class in Chinese culture to get a better understanding of the new corporate owners.
He also said it makes little sense for employees to speculate about what the change in ownership will mean.
“Those are just what-ifs,” he said. “The what-ifs take your focus off what is.”
The union president, who plans to run for re-election next year, said the local workforce, available space and proximity to logistics giants FedEx and UPS also can sway Haier leaders to make some of their products — televisions, phones, blenders — in Louisville, to supply the U.S. market.
“It’s an opportunity for all of us here,” Crittenden said.