Mexico is not the only country embraced by Electrolux AB for its cheap labor, though its impending move of Greenville’s refrigerator production to Mexico is certainly the most ambitious.
The world’s largest home appliance maker likely will move production of vacuum cleaners from Sweden to Hungary, where a plant can be run for less money, Electrolux officials said Thursday during a conference call with analysts.
The move would cost Sweden 500 jobs but will save Electrolux $21 million annually by closing the plant in Vstervik, Sweden, Electrolux officials project.
By comparison, the company is taking a $170 million charge in the current quarter to move production of 1.6 million refrigerators from Greenville to the Texas-Mexico border.
“We’ll take the Greenville charge in the first quarter, but most of the cash outlay for the closing of Greenville will actually fall in 2005,” said Hans Straberg, president and chief executive officer.
Electrolux last month told its 2,700 Greenville employees the plant will close next year, with some products going to Anderson, S.C., but most going to a new plant in Mexico.
Greenville workers build side-by-side and top-freezer refrigerators for Frigidaire and other brands.
Fourth-quarter shipments of North American “core appliances,” including Greenville’s refrigerators, were up 7 percent, while vacuum cleaners rose by 3 percent.
For the year, industry shipments of core appliances in the United States grew by 4 percent. The big issue is the threat — and opportunity — of low-cost factories in Asia, Straberg said.
“Does this mean that we must move most of our production to China? No, I don’t think so,” he said. He described a three-prong attack for the global corporation:
Outsource more components to low-cost countries.
Existing plants are expected to farm out 40 percent of their components by 2006, compared with the 20 percent level now. They are also pooling purchases at the group level and simplifying, standardizing and consolidating products.
At that rate, Straberg said, “Some plants can stay right where they are and they can remain competitive for now.”
Shift some plants to lower-cost countries.
“For the U.S. market, a Mexican plant is fully competitive with an Asian plant,” Straberg said, because higher shipping costs from China offset cheaper labor there. That’s the same strategy in Europe, where production is shifting to eastern European countries that are overland from the markets of western Europe.
Expand manufacturing in Asia, for that market and beyond.
“In time, we expect to ship from low-cost Asian plants to markets around the world,” Straberg said.
In 2003, Electrolux announced projects totaling $350.7 million to shift production to lower-cost countries — Mexico, Russia, Thailand, Poland and Hungary.
Electrolux earned nearly $210.9 million, or 52 cents a share, in the fourth quarter of 2003, compared with a loss of $134 million, or 39 cents a share, for the same period a year ago.
For 2003, the company said currency pressure from a weaker dollar pushed sales down to $3.9 billion, down from $4.3 billion in 2002.
Profits for the year were $660.8 million, slightly off from $701.3 million the year before, while revenue was $17.4 billion, down from $18.2 billion in 2002.
The company also named its new chairman, former Electrolux chief Michael Treschow, and new board member Aina Nilsson, design director for Volvo.
The move came after board Chairman Rune Andersson and vice chairman Jacob Wallenberg chose not to seek re-election. Treschow is chairman of Ericsson and formerly was president and chief executive officer of Electrolux.
Shareholders are getting a bigger share, with a 91-cent dividend, up from 84 cents last year.
From MLive.com