Thursday, January 13, 2005

GM to unload train division

Illinois locomotive unit goes in effort to focus on core business of vehicles, loans.

By Ed Garsten / The Detroit News

Asset sales Major units GM has sold and when they were divested: • EDS in 1996 • Hughes Defense electronics unit in 1997 • Delphi Corp. in 1999 • GM Defense business in 2003 • Hughes Electronics and DirecTV in 2003 Comment on this story Send this story to a friend Get Home Delivery

General Motors Corp. has reached an agreement to sell its LaGrange, Ill.-based Electro-Motive Division for an undisclosed price to an investment group led by the Greenbriar Equity Group of Rye, N.Y., and Boston-based Berkshire Partners LLC.

With the sale of its locomotive division -- expected to be completed by March -- the once highly diversified automaker is now down to its core businesses of building cars and writing loans.

GM is shedding ancillary operations to concentrate management and financial resources on its automotive operations, which are struggling in Europe and North America. With its automotive profits dropping in recent quarters, GM has relied on its huge finance and mortgage arm to generate earnings.

"They need the money," said Sean McAlinden, an economist with the Ann Arbor-based Center for Automotive Research. "Electro-Motive is simply not core to GM's business."

GM's North American automotive operations lost $22 million in the third quarter, the first loss in six years.

In addition to flat U.S. auto sales and generous discounts, pension and growing health care obligations have become a bigger drag on the automaker's earnings.

GM has been steadily downsizing since the early 1990s by consolidating its automotive operations, reducing employment, closing factories and divesting other noncore assets such as Electronics Data Systems Inc., auto parts maker Delphi Corp., Hughes Corp. and DirecTV.

Faced with excess U.S. factory capacity, it is ending production by next month at a Linden, N.J., SUV factory and will close its Baltimore, Md., assembly plant by this summer.

GM expects to cut up to 8,000 U.S. jobs by attrition this year. In Europe, it is eliminating 12,000 jobs at its money-losing European operations by 2006.

GM entered the locomotive business in 1930 when it acquired Winton Engine and Electro-Motive, Winton's biggest customer. Electro-Motive has become one of the world's largest diesel locomotive manufacturers. It has produced more than 58,000 diesel-electric locomotives for customers in 73 countries.

While demand for locomotives has rebounded as the global economy has recovered, Electro-Motive faces stiff competition from rivals General Electric Co.p.'s GE Transportation Systems unit and Germany's Siemens AG.

The division employs 2,600 hourly and salaried workers at operations in LaGrange, Ill., and London, Ontario, Canada.

"Greenbriar and Berkshire Partners have a long-term commitment to creating value in the railroad industry that extends back to the 1980s," Reginald Jones, a managing partner of Greenbriar Equity Group, said in a statement. "Electro-Motive has outstanding products, employees and a truly global franchise, and we believe the company's prospects are bright."

Before the sale can be completed, negotiations with the United Auto Workers union over a new pact covering wages, benefits and pensions must be concluded, and the agreement must be ratified by workers. UAW spokesman Roger Kerson said the union had no comment on the impending sale.

About 800 UAW workers are employed at Electro-Motive's LaGrange plant, where diesel engines are assembled.

But UAW workers at the plant have been without a new contract since September 2003.

You can reach Ed Garsten at (313) 223-3217 or egarsten@detnews.com.