In February, 1,400 employees of Carrier Air Conditioner in Indianapolis were told their jobs were being transferred to Mexico to cut costs.
It turns out that, according to the annual report of United Technologies, its parent company, that Carrier was a profitable and growing business segment. In 2015, it was UT’s best-performing division in the company.
So why mess with it? UT management hoped to boost the company’s stock price by cutting costs. Managers say they plan to keep on cutting costs for the indefinite future, evidently without regard to
All this runs contrary to the way I was taught in college that a capitalist free enterprise system is supposed to work.
I was taught that the duty of corporate management is to ensure that the corporation survives and is profitable into the indefinite future. This goal is achieved by making good products and at a reasonable price, and provide good customer service. To do this, it is necessary to re-invest a good portion of the profits in the business.
UT management’s philosophy is evidently the opposite—to take money out of the business and give it to the passive shareholders.
The New York Times evidently had a good article on this, which unfortunately is behind a pay wall. David Dayen summarized its conclusions in an article for Salon.
Last year, Carrier produced a significant chunk of total profits for its parent company, United Technologies. Of $7.6 billion in earnings in 2015, $2.9 billion came from the Climate, Controls & Security division, where Carrier resides. Profits from this division have expanded steadily in recent years, which is not what you’d expect from a unit desperate to cut labor costs.
A look at United Technologies’ annual report reveals even more good news: Commercial and industrial products, Carrier’s category, make up over half of UTC’s $56 billion in net sales. Climate, Controls & Security had 3 percent growth in 2015, the highest in the company; it was the only division to increase its profit margin year-over-year.
“Organic sales growth at UTC Climate, Controls & Security was driven by the U.S. commercial and residential heating, ventilation and air conditioning (HVAC) and transport refrigeration businesses,” according to page 14 of the report. In other words, air conditioners – what the workers are making in Indianapolis – drove the growth of the best-performing facet of United Technologies’ business.
So why would a profitable, growing business need to ship jobs to Mexico? Because their shareholders demanded it.