Early Wednesday morning, a mere 24 hours before Caterpillar Inc. knocked it out of the park with its record-breaking fourth quarter revenues and record-breaking fourth quarter profits and record-breaking annual revenues and record-breaking annual profits and anticipated record-breaking performance for 2012, Laurel MacDowell was driving her usual route to the University of Toronto’s Mississauga campus. MacDowell, a history professor with U of T’s Centre for Industrial Relations and Human Resources, had tuned in to CBC Radio’s Metro Morning and caught the daily exchange between host Matt Galloway and the show’s business commentator, Michael Hlinka.
The conversation was focused, largely, on the lockout of 481 unionized workers at the Electro-Motive Diesel plant in London, Ont., and Caterpillar’s tabled offer to the workers, which would see a wage collapse of between 43 per cent and 50 per cent for the majority of employees.
Hlinka played the “free market” card — as in, the market will decide what constitutes a competitive wage — leading Galloway to interject that Caterpillar’s offer to workers meant a slashing of wages. In response, Hlinka said this: “Sure, but there are thousands of Canadians who would love to work at that wage. . . The fact is, they’re not worth more.
“This is not highly skilled work, not particularly difficult work. It doesn’t require a great amount of skill.”
“He was totally patronizing,” MacDowell says. “I was thinking as I was listening to him, you know, we’re so sensitive about gender and race and sexual orientation, but we’re very insensitive about class. Apparently it doesn’t matter that a company that’s got more power is essentially bullying these people.”
What MacDowell calls a hardening of attitudes toward the London workers includes a hardening of attitudes toward people like Ralf Zapke.
A week ago, Zapke could be found quietly standing among the boisterous throng of workers and supporters who had gathered at a London rally to protest against the owner with the ticker symbol CAT, an acronym that predictably leads to signage criticizing the big cat, the fat cat, and its bulldozing of Canadian jobs.
In 1993 Zapke signed on with EMD as a welder. He had put in 10 years at Stelco, saw the writing on the wall there, and jumped to another company before jumping to EMD when the opportunity arose. “It was perfect,” he says. “Right up my ally.”
Zapke is 49, soft-spoken, cancer-stricken — “shit happens” — and currently out on sick benefits. He’s more reflective than most, explaining the job of a welder, from beading and fillet welds to the multiple passes on joints required when you’re sticking two-inch-thick steel to inch and three-quarter steel.
As London mayor Joe Fontana likes to say, making a locomotive is not like making a pair of tweezers.
“You’ve got machinists, you’ve got electricians, you’ve got pipefitters,”says Jim Wrinn, editor of Trains magazine. “Putting a locomotive together is a million small pieces and components and they all have to come together and they all have to fit right and work in unison. It’s basically a rolling power plant that’s going down the tracks.”
After more than a decade of welding at EMD, Zapke was asked to apply for the position of overhead crane operator, which struck him as intimidating, being in a glass-floored cab, 40 feet in the air, especially given his fear of heights, not to mention the skill of maneuvering a 30-tonne engine onto a locomotive platform. But then again, the welding fumes were getting to him. “I had been sucking in smoke for the last 25 years of my life, so I decided it was a good time to make a change. I got over the height thing. I got very good at my job to the point where they made me a trainer, training the new recruits coming in on the crane crew.”
Zapke digs out his last regular pay stub before his cancer put him in the sick bay. “My regular pay rate is $32.91,” he says. The proposed wage rate would take him down to $18. “You can work for the Beer Store and make more money serving people. I know that for a fact.”
There are 258 Electro-Motive workers in the same boat as Zapke, facing a potential 50 per cent pay cut. That group, representing 53 per cent of the work force at the London plant, includes assemblers and machinists. Below that group, at the bottom of the pecking order, are the four workers in what could be classified as the least skilled jobs in the shop: cleaner, truck driver. Those four are looking at a 54-per-cent pay cut. Higher up the scale, the likes of fabrication machine operators and special machinists are being asked to take a 43- to 45-per-cent pay cut. Those least affected are the 33 workers — electricians, plumbers, tool and die makers — who would see their current average wage of $42 drop to $34.
Barring a situation in which a corporation is attempting to skirt economic collapse, Laurel MacDowell can find no historic comparison. “It’s like going back to a period before there were unions, when employers had all the power. . . Part of our social political fabric has been to develop a system of collective bargaining, a labour-relations system that is legally backed. If we don’t have that to protect people, we literally will go back to where people have no security, no vested interest in their job and will be exploited.”
After releasing its results Thursday, Caterpillar reached for a historic reference of its own. The company’s two top executives — chief executive officer Doug Oberhelman and chief financial officer Ed Rapp — joined investor relations director Mike DeWalt in an analysts’ walk-through of the 83-per-cent jump in annual profits to $4.9 billion on revenues of $60.1 billion, a target the company had not expected to reach just yet. To put that performance in perspective, DeWalt told analysts from J. P. Morgan, Goldman Sachs, Wells Fargo, etc., Caterpillar was enjoying its most significant increase in sales “since Harry Truman was president.”
What the locked-out London workers may have missed on earnings day was DeWalt’s complimentary nod toward Electro-Motive Diesel, which includes principally the London facility and a plant in LaGrange, Ill., where the diesel engines are built before being shipped to London.
The company had proved to be a positive “bolt-on,” said DeWalt. “EMD really added to a great rail services business which gives us an end-to-end rail business.” And, in fact, it was partly due to the EMD acquisition that the company was able to reach its financial targets sooner than expected.
It’s not that Caterpillar has been big in the rail game. It’s that it has long wanted to be.
The heavy equipment manufacturer, recognizably egg-yolk yellow in its colour branding and renowned for its massive earth-hauling equipment (it’s huge in mining for example), purchased Progress Rail Services Corp. in 2007.
In August 2010, Caterpillar, through Progress, completed the purchase of EMD from two U.S. private equity firms, Berkshire Partners and Greenbriar Equity Group, which, years prior, had purchased what had been the locomotive division of General Motors.
Brandy Damm, who joined EMD as a welder in 2007 — “Not anyone can just pick up a whip and put down a proper weld,” she says — remembers the day that Progress CEO Billy Ainsworth arrived in London to greet his new troops.
“We had an all-hands meeting. We decked out the shipping and receiving area. . . It seemed like he was really heartfelt. He really did want to build locomotives.”
What did he say? “He said he wanted to kick the crap out of GE. Those were his words.”
To understand the market, in this instance, means looking to General Electric, the leader in locomotive manufacture. Time was, Electro-Motive ruled the industry. In 1980, according to data compiled by Trains magazine, Electro-Motive manufactured close to 1,500 locomotives, while GE, virtually its only competitor, built a third as many. Three years later, Electro-Motive’s production fell off a cliff, to roughly 100 units, and the company was beaten for the first time by GE, which remains by a wide margin the market leader today.
Trains’ Jim Wrinn can speak to vibration problems and issues with wheel slip control and a problematic motor with EMD’s product circa 1980. A fever graph of the industry race between the two companies shows EMD, under General Motors, staging a neck-and-neck battle with GE in the early nineties. Before the U.S. tumbled into recession, GE had emerged as the clear market leader. “In the last year before the recession GE was producing 800 to 900 units a year versus about 300 a year for EMD,” Wrinn says.
Production in the locomotive trade had been relatively anemic since. But that’s not the story. The story is the future. The story is the order book.
For Wall Street watchers of Caterpillar, the future looks like this: while the rail business as a whole comprises about four per cent of Caterpillar’s sales, the next decade could deliver fivefold growth. Wrinn rattles off contributing factors: the demand for low-sulphur coal from the Powder River Basin in Wyoming, shipped to power plants throughout the United States; container trains shipping Asian imports from the West Coast to points east; and a fascinating forecast presented at the U.S. Transportation Research Board last week — that by 2050 there will be 100 million more Americans in the U.S. and that statistically each person equates to 40 tonnes of freight being hauled each year, which equals four billion more tonnes of stuff being moved annually by planes, trains and automobiles. “The potential for growth is huge,” says Wrinn. And that’s not even considering the export market.
Last May, GE Transportation — “The world’s leading maker of rail and transportation products,” it likes to say — announced a $96-million investment to build a new facility in Fort Worth, Tex., with a focus on the manufacture of fuel-efficient locomotives. Texas Governor Rick Perry was thrilled that such a mighty company would appreciate the “investment climate” offered by Texas. The investment climate of Texas, Tennessee, places like that, have low-wage appeal.
“Of course it’s a concern,” says Gene Elk, a representative with the United Electrical Workers in Pittsburgh, Penn. “That’s why we’re going to be busy organizing that facility as soon as they get bodies in there.”
The workers in London don’t talk about Texas. They talk about the agreement reached between GE and its unionized workers at its Erie, Penn., plant last June, including a $5,000 signing bonus and a 7 3/4-per-cent wage increase across three years. That contract governs not just the locomotive workers in Erie, says Elk, but seven other facilities in the U.S. According to the UE workers, the average wage at the Erie plant is $30 an hour.
“That’s our competition,” says Brandy Damm, who was working as an assembler at the time of the lockout. Damm’s hourly wage was $34.50 an hour. Caterpillar’s wage offer: $16.50.
“I can give you the cleaned-up version,” Damm says of her reaction. “I was really pissed off.”
Damm tooled around last week’s rally with protest signs piled in the back of her pickup truck. In a later interview she suggests that labour has entered a new paradigm — those are her words. “This is a pivotal point,” she says. “I think we’re making history right now.”
But history how?
As she strode away from the rally, on a sunny January day that had kindly warmed the protesters in London’s Victoria Park, NDP MP Peggy Nash returned to the theme that has echoed through the now 28-day dispute. “Somebody said, if they want to cut wages to $16, I make 12. I’d gladly work for 16,” she said. “The question isn’t would you work for 16. The question is, would you work for 6? Because if you can cut these wages by 50 per cent, they’ll cut your wages by 50 per cent. That’s the question.”
In the investing community, the lockout in London may draw sympathy on an emotional level, but a mere shrug on a pragmatic, we’re-here-to-make-money level. In 1980, as much as 80 per cent of Caterpillar’s workforce was unionized. Today, the Cat’s unionized work force hovers around 10 per cent, and Wall Street likes that. “They’ve done it everywhere, they’re not just picking on Canada,” says one observer who has followed the company closely.
The dark view is that the battle being waged is not, ultimately, about wages for 481 workers, but a full transfer to the vast abandoned facility in Muncie, Ind. — an old Westinghouse factory — that Progress Rail, a.k.a. Caterpillar, purchased in the fall of 2010, complete with rail spurs and soaring ceilings, perfect for hoisting cabs onto locomotives.
That facility went into production last summer, though an editorial last month in the Muncie Star Press says that the plant’s employment numbers, where a ramp-up to 650 jobs has been promised, have proved ungettable. In an email Progress Rail says it has been ramping up staffing “consistent with the needs of the facility,” and declined to specify numbers.
A now-expired job posting for a human resources manager at the plant listed in its qualifications a bachelor’s degree in HR, or related, and “experience with providing union-free culture and union avoidance.”
There’s a belief among the locked-out EMD workers that Muncie’s quality of work can’t match the skill set in London, where locomotives have been rolled out for six decades. “The problem they’re having in Muncie is trying to get skilled trades,” says Wade Purdy, who spent 22 years as a painter in the London facility and is now a truck driver in the plant. “None of them can pass the testing that we have. . . You don’t want a locomotive falling apart on you when it’s going down the tracks.”
There have been few surprises for Purdy in the story thus far. “They’re doing exactly what we knew they were going to do,” he says of Caterpillar. “Billy Ainsworth would come down here and have a meeting with us. He was always throwing out that we’re not cost-competitive, that Canadians were making too high of a wage.”
If the intention is to move the production to Indiana, and if the only thing that stands in the way of that is Wade Purdy’s skill-set argument, then the only obstacle is time and training. One industry expert who attended the official plant opening last October, when asked what, in his view, London can do that Muncie can’t, responded. “Nothing . . . I doubt that it’s right up to speed. But it will be able to do, with maybe some minor exceptions that I’m not aware of, it will be able to do what London does.”
Canadian Auto Workers President Ken Lewenza says he received verbal assurances from Billy Ainsworth himself that the retrofit of that Muncie facility was not meant to drain work away from London. “We were given quite a bit of assurance from the Progress Rail group that this was just a transition of sale in the human resource side of the business, and that the work allocation side of the business was not likely to change,” he says. But he says now that an optimistic or even truthful evaluation is out of his reach. “I’ve said, ‘Listen, if your objective is to put a proposal on the table that you absolutely knew was going to be rejected by our membership and ultimately you’re going to close the plant and utilize the labour relations climate as a reason to close it, then just tell me now. Let’s not kick the shit out of each other if, in fact, your desire is to close the plant.’ ”
EMD declined a request for an interview. By email, the company’s media spokesperson at public relations firm Fleishman-Hillard issued a statement deeming the London operation inefficient, operating under antiquated work rules and uncompetitive wage rates.
On Dec. 27 , the company’s labour relations team squared off against Lewenza’s team at a morning meeting at London’s Hilton Hotel. Staring down the asked-for wage cuts, Lewenza says he put this question on the table: “Have you ever got the level of concessions you are demanding here from any union?” He says the response was no. To the question “Are you aware of any company in the world that ever got this?” the answer was no. And to the question “Can you tell me one employer that cut wages 50 per cent?” the answer was no.
“I can’t imagine what it must be like to have your boss say we’re going to cut your pay in half, immediately,” says the U of T’s MacDowell.
Ralf Zapke says it feels lousy.
“I think they want to starve us out,” he says.
Not knowing what the future holds, what kind of wage he will have to go back to — “If I have a job to go back to” — Zapke and his wife, Lise, put their two-bedroom bungalow with in-ground pool up for sale this week.
The couple will move closer to Lise’s job — she earns about $16 an hour working part-time at the Beer Store.
Jim Wrinn sends along a photo of a new EMD locomotive, a demonstrator unveiled at a Minneapolis trade show last September. A locomotive is a lovely thing to look at. Big and complicated. The locomotive is silver and blue emblazoned with eye-catching branding. “The next generation of Progress” — it says so right there on its side.
Statistics: Posted by yoda — Sun Jan 29, 2012 3:31 am
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