Increasing pressure on GE Transportation led to Erie production announcement

Dwindling orders, global competition, and changes at parent GE all played role
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ERIE, Pa. — GE Transportation, a small part of the General Electric empire, has been under pressure from dwindling locomotive demand in North America, increasing global competition, as well as from changes at its parent company.

New locomotive orders from North America have all but dried up amid the freight recession that hit railroads in the second half of 2015 and ran through the end of last year. The Class I systems have more than 4,000 locomotives in storage and continue to prune their fleets even as traffic rebounds this year. Railroads also have reduced the need for new locomotives by hauling the same amount of tonnage on fewer, longer trains.

As a result, GE expects locomotive production to fall by half this year, with no improvement seen in 2018.

Meanwhile, GE has been facing increasing global competition, particularly from Chinese firms, as it seeks orders overseas.

The cost structure of the Erie plant made competing on price more difficult. The average salary of a production worker in GE’s plant in Erie is above $30 per hour, according to the Erie Times-News. The starting salary for workers in the non-union Fort Worth plant was $17 per hour when the plant opened in 2013, according to the Fort Worth Star-Telegram.

GE Transportation may be the continent’s dominant locomotive builder, but it’s just a tiny piece of General Electric. It accounted for just $4.7 billion — or less than 4 percent — of GE’s overall revenue of $123.7 billion in 2016.

But it has not been immune from forces working inside GE, a conglomerate in flux.

In 2016, GE sold its appliance division, announced the sale of its water and industrial products divisions, and essentially wound down its financial division, GE Capital. It also merged its oil and gas business with Baker Hughes, integrated Alstom’s energy business, and acquired a wind power company.

And activist investor Trian Fund Management, led by Nelson Peltz, has been pushing management to cut costs and boost profitability. GE responded in March, when it said it would double its cost-cutting target to $2 billion this year and next.

Last month, embattled CEO Jeffrey Immelt announced he would step down, to be replaced by GE Healthcare CEO John Flannery on Aug. 1.

In a June investor conference presentation, GE Transportation CEO Jamie Miller said the Chicago-based company would concentrate on the global market for new locomotives. GE has a 1,000-unit order from India, a 233-unit order from South Africa, and has long-term contracts with railroads in Nigeria and Kazakhstan.

In North America, GE is shifting to a service strategy that focuses on re-manufacturing older locomotives and providing the predictive technology that will improve reliability and speed repairs.

It also sees global opportunities for its service and technology offerings.

NEWSWIRETrains News Wire

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