During the earnings call on July 21st, Jeff Bornstein, General Electric Company, Vice Chairman laid out the situation for GE Transportation and it explains why major changes are necessary:
On Transportation, North American carload volume continues to improve off a low base. Carload volume grew 7.3% in the quarter, driven by Intermodal higher by 5.6% and commodity carloads up 9%. Commodity carload growth was driven by export coal up 18% and agriculture up 10%, partially offset by petroleum down 4%.
Despite improving trends since mid-2016, overcapacity remains, with parked locos around 4,000 and very little investment appetite from US customers.
Orders in the quarter of $830 million were higher by 22% on easy comparison. Equipment orders of $231 million doubled on international demand for 26 locos. Service orders of $600 million grew 7% on good growth in loco parts and mining.
Revenues of $1.1 billion were down 14%, with equipment down 27% and services flat. We shipped 120 locos in the quarter versus 222 a year ago, with international shipments up 34%, partly offsetting North America, which was down 77%. Operating profit in the quarter was down 26% on lower volume, partly offset by cost action.
The North American locomotive market will continue to be challenging in 2017 and 2018. We expect 2017 loco shipments to be lower by about 50%, with operating profit down double digits as we have guided.
The business is focused on growing internationally. The business recently announced a $575 million win in Egypt for 100 locos plus services. We expect this to book as an order in the third quarter. Executing on resizing the business to market has been ongoing and we’ll continue to evaluate additional actions as needed.
When GE announced they would be ending locomotive production in Erie, some reacted with anger, but reading the numbers above makes it plain, you can’t build and sell new locomotives as before when there is so little demand, 4000 in storage and what demand there is comes from international markets.
Listening to Erie County and City of Erie leaders reacting with surprise is absolutely mind boggling since GE has done everything but spell it out by moving their headquarters to Chicago and laying off thousands in previous years, not to mention building a new plant in Texas. It seems everyone knew this was coming except for those wishing it was not.
This announcement by GE sets a timeline for what was previously just a rumor. It’s like knowing the future. Having time to prepare and adapt presents a great opportunity for Erie County. Let’s not waste it.