General Electric Co. Chief Executive Officer Jeffrey Immelt says he’s returning refrigerator-production work to the U.S. from Mexico to boost profitability in appliances. Investors say a bigger reason may be his leadership of President Barack Obama’s jobs panel.
Immelt was in Louisville, Kentucky, yesterday to say that he’s bringing back 600 jobs under an $800 million investment in its manufacturing complex there. Welcomed by local officials, the new positions add to GE’s existing Louisville workforce of about 4,000.
Investors, who expressed ambivalence, said the shift will mean relatively little to GE’s strategy or financial outlook. The Home & Business Solutions division that includes appliance manufacturing makes up only 5.7 percent of GE’s $147.3 billion of revenue and 2.1 percent of its $14.2 billion of profit.
“I don’t view it as anything more than helping out the cause,” said Peter Klein, a senior money manager at Fifth Third Asset Management in Cleveland, which oversees $14.6 billion in investments including GE stock. “It’s good for the headlines. It’s not going to affect anything.”
GE dismisses claims of any political overtones. The job shift makes sense because U.S. workers can produce higher-quality products for less, according to the Fairfield, Connecticut-based company.
“The only way this works is if we make more money,” Charlene Begley, CEO of the Home & Business Solutions unit, said in an interview on the floor of the retooled factory after the new refrigerators were unveiled yesterday. “The economics were better for the shareholder bringing it back.”
The appliance unit plans to spend $65 million on a nationwide advertising campaign this year to help promote the Louisville-made refrigerator, compared with $10 million spent on ads in 2011, Michelle May, a GE spokeswoman, said in an e-mail.
GE was unchanged at $20.07 at the market close in New York. The shares have gained 12 percent this year, compared with 11.6 percent for the Standard & Poor’s 500.
More than 10,000 people applied for the Louisville jobs, which pay $13.03 an hour under a union accord to cut new employees’ wages. That compares with $22 an hour for those hired before 2005.
Along with water heaters that began production last month, the refrigerators are GE’s first new product lines in Louisville in more than 50 years. Both are designed to meet demand for energy-efficient appliances, with the water heaters using less than half the energy consumed by traditional models.
1,200 Workers Gather
“Our dedication to making great products has to be matched by our dedication to investing in facilities like this one,” Immelt, 56, told an audience that included Kentucky Governor Steve Beshear and 1,200 GE workers.
“These products we design, we have to make in GE factories and we have to have the men and women in this room dedicated to quality, productivity, craftsmanship and pride that has to go into each of these products,” Immelt said.
Immelt, a Republican, was named to lead the jobs panel for the Democratic Obama in January 2011, about 1 1/2 years after GE said it would add water-heater jobs in Louisville. The White House tie had “nothing to do” with the idea of putting more appliance work in the U.S., Begley said.
Most of the division’s growth potential lies within the U.S., GE said, and the company plans to add 1,300 U.S. jobs in that business through 2014. GE wants to boost industrial revenue from so-called growth markets outside the U.S. to 50 percent within 10 years, from 37 percent now. Appliances went unmentioned during a March 7 meeting with investors in Rio de Janeiro focused on emerging markets.
That’s helping to rekindle speculation that the unit, which also makes light bulbs and microwaves, may be sold after China’s Haier Group Corp. studied a bid in 2008.
“It doesn’t fit in at all,” said Nick Heymann, a William Blair & Co. analyst in New York. “Immelt is on the jobs council and taking advantage of incentives they’re offering him to rehire and train these guys, creating all these jobs making things they used to source from abroad. This is just not where the focus is.”
GE’s worldwide workforce rose 4.9 percent in 2011 to about 301,000 people at year’s end, the first annual increase since 2007, according to a Feb. 24 filing. The U.S. payroll climbed about 10,000 to 131,000. State and local governments put up $17 million in subsidies to help GE revamp the refrigerator and hot-water heater facilities.
“There’s some enthusiasm about this here,” said Paul Coomes, an economist at the University of Louisville College of Business. “We’ve had a recession with no job growth for many years, and when there’s job growth, it does generate some excitement.”
Only 11 states and the District of Columbia had unemployment rates higher than Kentucky’s 8.8 percent in January, according to the U.S. Bureau of Labor Statistics.
The decline in GE’s Louisville payroll from a peak of about 22,000 in the 1970s mirrors the slide in manufacturing employment across the U.S., which fell to 11.9 million in February from a 20-year peak of 17.6 million in March 1998, according to BLS data.
The criticism that GE and Immelt have drawn is undeserved, especially in a place where they’re bringing back jobs, and reflects an increasingly contentious political climate, Louisville Mayor Greg Fischer said.
“It’s a reflection of the cynicism in our country right now,” Fischer said. “People should pull back and realize this is a good thing for our country and celebrate it instead of raising these questions.”