Summary
Peterbilt Div. of Paccar, Inc. announced they will permanently close its Madison, TN plant (nearby Nashville). The Peterbilt United Auto Workers (UAW) job loss numbers there are miniscule when compared to that going on in the auto industry, but at least that work is remaining within the US borders.
Analysis
The truck (and auto) manufacturing realignments are continuing. The referenced Peterbilt announcement gets drowned out by current events surrounding General Motors, Ford and Chrysler. According to the US Department of Labor, the UAW lost 107,000+ jobs in 2007 and 2008 with tens-of-thousands more in 2009. Some guess UAW will end up somewhere around 400,000 members this year.
The Peterbilt decision looks pretty smart to us. Like all businesses, decisions about plant location depends on a variety of issues including proximity to their overall supply chain, incentives from States / localities, low energy costs, sufficient water and other issues, but most importantly a cost-effective labor pool. That decision process had been ongoing for all types of manufacturers for a long time.
Looking back at history, truckers favored truck nameplates according to the region they were from. Peterbilt was historically called a West Coast manufacturer, as was Freightliner. Navistar (International), GMC, Ford, White, Mack and other smaller ones were the East of the Mississippi River ones. As Paccar (Peterbilt & Kenworth) and Freightliner brands gained in popularity, it made sense to move manufacturing East where labor costs were less and they would have factories closer to their engine / drive train suppliers and end-user buyers. Peterbilt entertained offers to open a plant in Indiana, Ohio, Kentucky and Tennessee - and chose Tennessee.
I first recall visiting Peterbilt headquarters and main plant in Newark, California in the late ‘70’s. It was put there around 1960 with the Madison, TN plant following in 1969. Both plants were union - California had machinists and three others (if I recall correctly) and Tennessee had Boilermakers followed by the UAW. Both plants experienced periodic labor problems all along the way.
We all know of how many businesses have closed or moved out of California over the years due to costs and onerous regulations. Newark is in the south Bay area where heavy manufacturing was being replaced by high tech. In mid ’86, all Peterbilt plants were asked for their labor concessions in order for each to stay open. Newark was closed shortly thereafter affecting about 1,000 union job.
If you want to see a beautiful high-tech plant, take a tour of Peterbilt’s Denton, Texas plant. From the start in 1980, the Denton plant has been non-union. I recall going there the first time seeing Werner Enterprises Cabovers running down the line. The headquarters with sales / engineering was moved from Newark to another facility in Denton in 1993.
While the Madison, TN plant was impressive, it had been dogged by labor issues from its start. They had a work stoppage in 1992 for 14 weeks, another in 1998 that lasted more than six months, a 10-month lockout in 2002-2003 and then the plant has been idled since July 2008. This week’s closure announcement is effective December 1. The long-time picketing UAW workers will have to go home.
This is not good for organized labor, but still good for US labor. Competitors’ Navistar, Freightliner and other industry suppliers like ArvinMeritor, Eaton and others, have added manufacturing south of the border to gain access to lower labor costs. It’s the same thing as with US auto makers. Volvo, Mack and Peterbilt have no manufacturing in Mexico. Paccar’s Kenworth division manufactures trucks in Mexico, but they are for buyers exclusively in Mexico and other Latin America countries.
Our financiers and I have always liked (and bought) a lot of Pete’s. Also gotta agree it’s not about union busting as some are saying, but lowering overall costs to us buyers. This makes a lot of business sense!
The Peterbilt decision looks pretty smart to us. Like all businesses, decisions about plant location depends on a variety of issues including proximity to their overall supply chain, incentives from States / localities, low energy costs, sufficient water and other issues, but most importantly a cost-effective labor pool. That decision process had been ongoing for all types of manufacturers for a long time.
Looking back at history, truckers favored truck nameplates according to the region they were from. Peterbilt was historically called a West Coast manufacturer, as was Freightliner. Navistar (International), GMC, Ford, White, Mack and other smaller ones were the East of the Mississippi River ones. As Paccar (Peterbilt & Kenworth) and Freightliner brands gained in popularity, it made sense to move manufacturing East where labor costs were less and they would have factories closer to their engine / drive train suppliers and end-user buyers. Peterbilt entertained offers to open a plant in Indiana, Ohio, Kentucky and Tennessee - and chose Tennessee.
I first recall visiting Peterbilt headquarters and main plant in Newark, California in the late ‘70’s. It was put there around 1960 with the Madison, TN plant following in 1969. Both plants were union - California had machinists and three others (if I recall correctly) and Tennessee had Boilermakers followed by the UAW. Both plants experienced periodic labor problems all along the way.
We all know of how many businesses have closed or moved out of California over the years due to costs and onerous regulations. Newark is in the south Bay area where heavy manufacturing was being replaced by high tech. In mid ’86, all Peterbilt plants were asked for their labor concessions in order for each to stay open. Newark was closed shortly thereafter affecting about 1,000 union job.
If you want to see a beautiful high-tech plant, take a tour of Peterbilt’s Denton, Texas plant. From the start in 1980, the Denton plant has been non-union. I recall going there the first time seeing Werner Enterprises Cabovers running down the line. The headquarters with sales / engineering was moved from Newark to another facility in Denton in 1993.
While the Madison, TN plant was impressive, it had been dogged by labor issues from its start. They had a work stoppage in 1992 for 14 weeks, another in 1998 that lasted more than six months, a 10-month lockout in 2002-2003 and then the plant has been idled since July 2008. This week’s closure announcement is effective December 1. The long-time picketing UAW workers will have to go home.
This is not good for organized labor, but still good for US labor. Competitors’ Navistar, Freightliner and other industry suppliers like ArvinMeritor, Eaton and others, have added manufacturing south of the border to gain access to lower labor costs. It’s the same thing as with US auto makers. Volvo, Mack and Peterbilt have no manufacturing in Mexico. Paccar’s Kenworth division manufactures trucks in Mexico, but they are for buyers exclusively in Mexico and other Latin America countries.
Our financiers and I have always liked (and bought) a lot of Pete’s. Also gotta agree it’s not about union busting as some are saying, but lowering overall costs to us buyers. This makes a lot of business sense!
Jay Thompson consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
