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United States News Title: Morgan jobs go adiós- 500 laid-off (Jobs to Mexico) Morgan jobs go adiós Is cheap Mexican labor behind mass layoff at Hartselle plant? By Eric Fleischauer Staff Writer Emerson blamed the coming layoff off of 500 of its 540 Hartselle plant employees on the recession and environmental regulations, but corporate documents suggest otherwise. CR Compressors, formerly known as Copeland Corp., is operated by Emerson Climate Technologies. Despite its explanation for the layoffs, corporate disclosures show compressor sales are growing and the regulated phase-out of R22 refrigerant is improving sales. While corporate officials offered little comment last week, corporate disclosures suggest the layoffs have less to do with the stated reasons than with cheap labor in Mexico. Emerson Corp. sales suffered during the recession, but the division that operates CR Compressors in Hartselle is enjoying increased sales. Sales for the first quarter of 2010 were up 13 percent, with the U.S. seeing a 7 percent increase and Asian sales up 52 percent. “Climate Technologies orders strengthened,” Emerson said in a Securities and Exchange disclosure filed Wednesday. Indeed, January sales were more than 20 percent higher than in January 2009. In another February SEC disclosure, Emerson reported, “Climate Technologies orders continued to trend positive, driven by strength in Asia and improvement in air-conditioning and refrigeration end-markets.” In a Feb. 18 presentation at Barclays Capital Industrial Select Conference, Emerson Chief Executive David Farr told investors compressors represented 72 percent of Emerson Climate Technologies sales, and 56 percent of those sales were to U.S. consumers. He estimated sales would increase by up to 11 percent in 2010. Similarly, a U.S. regulatory requirement banning the production of air conditioners using ozone-depleting R22 refrigerant after January pushed sales up, not down, according to corporate documents. Efficiency requirement The R22 phase-out was the second of two recent regulatory changes that helped Emerson. The first was an energy-efficiency requirement that took effect in January 2006. Implementing the Seasonal Energy Efficiency Ratio, the regulation required all residential air conditioners to have a SEER of at least 13. Emerson was poised to benefit from both changes. As the company declared in its 2007 annual report, “Emerson is ready.” Its readiness resulted primarily from its 1987 development of the Copeland Scroll Compressor. The compressor is the most expensive part of the air conditioner, and Emerson sells its compressors to customers like Rheem, Carrier and York. The scroll compressor represented a major advance in efficiency over previous generations of compressors. The significance of the advance was realized with the advent of the SEER and R22 regulations. Air conditioners had to become more efficient and they had to use refrigerants other than R22. Emerson’s scroll compressor was an obvious way to meet both regulations. Not made in Hartselle Nonetheless, Emerson has never produced scroll compressors at its Hartselle plant. The plant has continued production of less efficient, R22-dependent reciprocating compressors. “We do not have a need for another scroll compressor plant right now,” said Emerson Climate Technologies spokesman David Baldridge. They don’t have such a need because in 2006, rather than updating the Hartselle plant, Emerson broke ground on a scroll-compressor plant in Reynosa, Mexico. The plant began production in 2008. Why Reynosa? One, it is on the U.S. border, separated from Texas only by the Rio Grande, and thus close to its primary market in the southern United States. Two, Mexico is part of the North American Free Trade Agreement. Three, factory wages in Reynosa average about $2.35 per hour. “With the addition of the facility in Reynosa, we are strengthening our existing global scroll manufacturing network and continuing to take steps to meet the growing demand for scroll technology,” said Tom Bettcher, an Emerson executive vice president, in 2006. “Copeland Scroll compressors offer the best solution for industry challenges, such as the 13 SEER regulation, and will become an increasingly important technology as we approach the 2010 phase-out of R22 refrigerant.” Reynosa is a premier location of maquiladoras, factories established in Mexico near the U.S. border specifically to use lower-wage Mexican workers to produce products for U.S. consumption. The city has about 150 assembly plants. Most of the plants receive materials from U.S. companies, use Mexican labor for assembly, and ship the assembled products to the U.S. for sale. They have been able to do so without tariffs or duties after 1994, due to NAFTA. Emerson also recently invested in scroll-compressor production facilities in Suzhou, China, and Rayong, Thailand. In its most recent annual report, Emerson explained Climate Technologies was “shifting certain production to Mexico” while “consolidating production facilities in the U.S.” Why no upgrade? Asked why it did not upgrade the Hartselle plant, Emerson Climate Technologies responded Wednesday with a written statement. “We are constantly reviewing our manufacturing strategy to make the best use of the equipment and property available to best serve our customers’ needs and still remain competitive,” wrote spokesman Baldridge. “Emerson supplies scroll compressors to customers all over the world, and our Reynosa location serves our scroll customers in that part of the globe. “Until the government regulated phase-out for R22 refrigerant and the drop in the housing market due to the general decline in the economy, the Hartselle plant was well-positioned to serve the market for production of reciprocating compressors.” In 2007 — the same year it broke ground on the plant in Mexico — Emerson accepted a $50,000 grant from Alabama for training employees at the Hartselle facility. Compensation As Mexican workers labor for $2.35 an hour and its Hartselle workers approach unemployment, Emerson shareholders have rewarded their executives’ success in cutting costs. In fiscal 2009, Chief Executive Farr received total compensation of more than $12 million, according to an SEC disclosure in January. Chief Financial Officer Walter Galvin received more than $6 million. Three other executives collected more than $2 million each.
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