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GE Drives Away from Transportation hen John Flannery took over as CEO of General Electric, he brought a vision of a company that would be
GE Drives Away from Transportation
hen John Flannery took over as CEO of General Electric, he brought a vision of a company that would be simpler and leaner. For years, GE had wowed managers around the globe as a high performing conglomerate engaged in everything from electricitygenerating equipment to entertainment NBC Universal to financial services to its iconic lighting division. But as the economy changed, GE was unable to sustain solid profits in some of these areas. Flannery determined that GE would focus on its three most profitable lines of business: aviation making jet engines power generation, and health care especially imaging equipment
Flannerys first big moves included spinning off GEs railroad business, one of North Americas leading makers of locomotives for freight trains. The business unit, GE Transportation, had been owned by GE since and had become less profitable in recent years. Flannery negotiated a deal with the Wabtec Corporation formerly Westinghouse Air Brake Technologies which produces equipment for freight railways and masstransit operations. The deal combines the two companies into one, owned roughly percent by Wabtec shareholders, percent by GE shareholders, and percent by GE itself. Wabtecs CEO was selected to run the business, and GE was to receive $ billion in cash when the deal closed.
The combined company should be a powerhouse in the transportation business. Based on the merging companies sizes at the time the deal was announced, it has more than $ billion in revenues and about employees. Combining the companies allows management to cut costs, perhaps as much as $ million a year. And it gives GE extra cash at a time when the company has a heavy load of debt.
While Flannery and his successor, Larry Culp have been asking themselves which businesses GE should be engaged in the managers of the former GE Transportation facilities have faced their own set of decisions. GE Transportation not only built a locomotive factory in Lawrence Park, Pennsylvania, a century ago; it also designed and built the community in which its workers would live. Generations of Lawrence Park residents took jobs in the factory and earned a comfortable living at wages negotiated by their union. GE was a key part of the community, and being a GE employee was a significant part of many community members identities.
For managers, being part of GEs highperformance culture meant they had to keep looking for ways to be more efficient. One way to save money was to have more of the work done by employees who would work for a lower wage. Like many other manufacturers in the Northeast and Midwest, GE Transportation opened a facility in the southern United States. The company chose Fort Worth, Texas, and built its largest plant there. Employment at the Lawrence Park facility has dwindled from about in the year the Fort Worth facility opened to fewer than today. That does not mean the factory cut production by the same amount, however. Many of the remaining jobs at Lawrence Park are hightech positions in advanced manufacturing, which lets companies produce greater output with fewer workers.
Meanwhile, at the millionsquarefoot Fort Worth facility, the nonunion workers are busy assembling locomotives. A highdemand area of business is refurbishing locomotives. A yearold locomotive is considered middle agedfar from ready for the scrap heap if it can be cleaned up and modernized with new parts. When locomotives arrive at the facility, workers remove major components and send them through separate production lines that meet up at the opposite end of the facility to be reassembled into a rejuvenated locomotive. The whole process takes roughly two months. Renovating a locomotive allows its owner not only to extend its life, but to make it more efficient. Installing hightech sensors and software can increase the locomotives efficiency and power. A train that once required three locomotives might run with twoa considerable savings for the railroad, especially considering that each locomotives fuel consumption might have fallen by Demand for this service is so great that the company even works on locomotives outside its factory; it has dispatched workers with supplies to customers own depots. Recently, Wabtec acquired RELCO Locomotives, a wellknown player in the locomotive overhaul and refurbishing industry, which expands Wabtecs capacity to support company expansion and growth.
Some observers expect that the move of production from Pennsylvania to Texas is one step in a process that will lead to building facilities in Mexico or other lowerwage countries. If that happens, it will be a decision made not by GE Transportation, but by the management team reporting to Wabtec CEO Rafael Santana.
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