McCook Fears Hard To Derail, Workers See GM Pulling Out Down The Line

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Matt O'Connor

Chicago Tribune, January 17, 1988, page C1, (Copyright 1988)

General Motors Corp.'s decision to move locomotive production to Canada from its sprawling plant in west suburban McCook, eliminating at least 2,000 jobs, may not be the last of the bad news from the plant.

Workers and union officials at GM's Electro-Motive Division in McCook fear that engine production will be next, followed by the loss of the headquarters staff, moves that would eliminate the remaining 2,300 jobs.

The demise of locomotive production at McCook, disclosed last week, had become as irreversible as a speeding train.

Not only has demand for locomotives fallen sharply in the 1980s, but Electro-Motive has lost its market lead to archrival General Electric Co. after years of capturing at least 80 percent of the U.S. market. The result: hundreds of millions of dollars in losses at a time when GM is struggling to reverse shrinking market share and profits in its auto business.

"We kind of sat there maybe a little fat and sassy," Clifford J. Vaughan, Electro-Motive's general manager, said in an interview last week. "We just didn't react quickly enough" to GE's aggressive plant modernization efforts.

Vaughan, who's also a GM vice president, took over at Electro-Motive just three months ago after spending 35 years in GM's car and truck business. After considering the McCook assignment for a week, Vaughan, 53, said he took the job "on as a challenge."

By producing locomotives only at its plant in London, Ontario, which is about one-fourth the size of the McCook factory, Electro-Motive will cut manufacturing costs. The company also will take advantage of Canada's lower medical and pension benefit costs and beneficial exchange rates.

In a study commissioned by Electro-Motive, Booz Allen & Hamilton Inc., a management consulting firm, investigated whether GM should get out of the business, among other possibilities. The firm recommended the move of locomotive production to Canada.

"You can see the handwriting on the wall," said George Dakuras, a union official at the McCook plant who feels competitive pressures from GE will cause Electro-Motive to shift engine production to South America.

Dakuras, chief bargainer for United Auto Workers Local 719, said GM for the first time built prototype engines recently at a licensee's plant in Brazil and has had engine capacity in Argentina for some time.

In the interview, Vaughan denied any plans to move engine production from McCook.

But in discussing the need to contract out certain in-house component work to lower-cost suppliers, he said: "That's not saying we're going to direct everything to Brazil or to Argentina or to Mexico or to Australia, but we're going to investigate opportunities there. We have to, because the name of the game is we've got to be competitive."

Even if the plant survives, the loss of locomotive production marks the second blow to southwest Cook County from GM. The company's auto body components plant near Willow Springs, a few miles from its McCook facility, will be closed by 1989, eliminating 2,900 jobs.

In addition, two other manufacturers announced in recent months plans to close separate west suburban operations nearby. In 1990, GE will move small- refrigerator production from its Cicero plant to Alabama at a cost of about 1,250 jobs. An E.J. Brach & Sons candy plant in Melrose Park, employing 240, will close next month.

Particularly hard hit by the twin GM blows will be Lyons Township, home to both GM plants.

The two plants' real estate tax bill in 1985 totaled about $4 million- about half of that going to schools.

"In any community where declining enrollment is already a problem, any loss (of taxes) is significant," said John Patzwald, superintendent of the Lyons Township High School District.

But Patzwald expressed special concern for the families of students. Many parents work at Electro-Motive, he noted, and will lose their jobs.

"It's going to be devastating for the hourly guys," said a salaried worker, who noted that most production workers won't find jobs matching Electro-Motive's average pay of $14.62 an hour.

Apparently, thousands already know what he means. As locomotive sales plunged in the 1980s, the McCook plant's employment dropped from a peak of 14,410 to today's 4,269. Despite that, it is still believed to be the largest employer at a single manufacturing site in Cook County.

"The Chicago area traditionally has been the largest center for rail equipment production in the country, and this plant is by far the largest link in that hub," said Greg LeRoy, research director for the Chicago-based Midwest Center for Labor Research.

The mammoth diesel-powered locomotives , costing at least $1 million apiece, are used mostly by the major railroads for moving freight.

In its heyday, Electro-Motive employed many workers "from Indiana, the city of Chicago, Joliet, even farther," said Emil Sergo, the longtime mayor of McCook, a highly industrialized village with a population of only 350.

"I think General Motors is turning their back on the men and women who helped them get where they are, and on their country," Sergo added.

Other community and business leaders, though, were cautious in their comments, not wanting to upset GM.

"They've been great neighbors for years," said Susan Bobinsky, general manager of the Illinois-Michigan Canal Civic Center Authority, which promotes economic development in the area. "Nothing can last forever."

Bobinsky is concerned, though, about rumors that GM already has sold some land at the plant to a sand and gravel company. GM confirmed to her that it was engaged in negotiations, Bobinsky said. She stressed that another quarry operation in the area wouldn't boost employment or tax revenue nearly enough to replace GM in those vital categories.

"We need input" (in any decisions by GM), she said, "so we're not left with a truly devastating situation."

GM's cutbacks-what the company refers to as its "rationalization renewal" program-won't solve its woes by themselves. But the move into a plant of about one-fourth the size of the 4 million-square-foot McCook operation will cut costs.

The move to Canada also will help reduce Electro-Motive's labor costs, but that's a relatively small portion of the cost of making locomotives .

Still, a researcher for the Canadian Auto Workers, which represents workers at Electro-Motive's Ontario plant, said labor rates in Canada are about $7 an hour lower than in comparable U.S. companies because of Canada's national health insurance and the lower value of its dollar.

It may be more difficult, though, for GM to regain its market lead from GE, which Electro-Motive's Vaughan said holds 60 percent of the U.S. market.

Since 1983, despite the locomotive market downturn, GE has plowed half a billion dollars into productivity and quality improvements at its Pennsylvania locomotive and engine plants and into development of its new-generation locomotive, called Dash 8.

At the same time, GM has been hurt by quality problems with its comparable SD60 locomotive.

Vaughan conceded the locomotives had to be recalled at what he called "a tremendous expense" to GM.

Even after the recalls, serious problems with the engine's turbochargers occurred, the UAW's Dakuras said.

On average, the SD60s have been able to operate only 60 percent of the time, compared with 93 to 94 percent for GE's Dash 8, Dakuras said.

The quality problems have extended to the lucrative parts business, which is contributing to an explosion in competition.

"It used to be anybody who bought parts got them from Electro-Motive," said Charles Edwards, chief mechanical officer of the Bayline Railroad in northern Florida. But Electro-Motive said as many as 125 competitors are selling locomotive replacement parts, up from about 15 a decade ago. And Edwards contends that much of the competition builds better-quality parts than Electro-Motive.

According to Vaughan, Electro-Motive will move locomotive production to Canada by 1991, but many expect the transfer to take much less time, perhaps as little as six months.

Some key machinery has already arrived in the plant, union officials here and in Canada said, and work has begun on 20 locomotives for the Southern Pacific Railroad that formerly would have been made in McCook.

"It makes no sense to delay (the move)," said Archie Bailie, chairman of the union at Electro-Motive's Canadian plant.

Vaughan said the loss of railroad production will reduce McCook's employment to about 2,300-1,500 production workers and 800 salaried workers. But according to Dakuras, Vaughan said as recently as the last few weeks that only 800 to 900 production workers will remain after locomotive production has been moved out.

At the McCook plant, Vaughan said Electro-Motive has customer orders to build 250 locomotives over the next year, about one a workday. But Dakuras contended that the plant's order board shows only 57 locomotives for the entire year.

"I've seen the schedule," Dakuras said.

As recently as 1979, the McCook plant averaged 5 1/2 locomotives a day.

For four months beginning in April, the plant doesn't have a single order, Dakuras said, leading him to expect that locomotive production will be temporarily shut down, with hundreds laid off over that period.

Once the move to Canada has been completed, Bailie, the union official at Electro-Motive's Ontario plant, said the plant will be able to produce up to 400 locomotives a year.

But he said, "I don't think they're anticipating getting up to those volumes for the next five years."

That bleak outlook led Bailie to suggest GM could yet decide to leave the locomotive business.

"I still don't think we're out of the woods on this thing," he said.

In a brief statement issued after a rash of press inquiries, though, Electro-Motive said, "We have been in business for 52 years and intend to be in business for another 52."

GRAPHIC: (color)

U.S. deliveries of locomotives
In number of units
1979 . . . . 1,978
1980 . . . . 1,666
1981 . . . . . 686
1982 . . . . . 501
1983 . . . . . 343
1984 . . . . . 680
1985 . . . . . 669
1986 . . . . . 408
1987 . . . . . 389 (Estimate)

GM Electro-Motive employment
Total workers at year-end; in thousands
1979+. . . . . 14.41 (As of Oct. 31 (peak employment))
1980 . . . . . 11.16
1981 . . . . . 9.16
1982 . . . . . 6.63
1983 . . . . . 6.76
1984 . . . . . 7.59
1985 . . . . . 6.28
1986 . . . . . 4.68
1987 . . . . . 4.27

Chicago Tribune Graphic by Tim Williams; Sources: Association of American Railroads, company reports.

PHOTO: (color) Tribune photos by Ernie Cox Jr. George Dakuras, president of Local 719 of the United Auto Workers. GM says the union must help cut costs at the McCook plant or face additional employment cuts.

PHOTO: (color) Clifford J. Vaughan, head of General Motors Corp.'s Electro-Motive Division, which is eliminating 2,000 jobs.