US conglomerate General Electric has announced plans to cut 12,000 jobs worldwide in its energy business – almost one in five jobs in the division. Europe is going to be hit particularly hard, with 4,500 job losses in Germany, Switzerland and the UK.
France however will be spared, with only minimal job losses there. The savings that General Electric, or GE, needs will be made in those other countries instead.
Unsurprisingly, that is causing some frustration. Was French President Emmanuel Macron a better negotiator than Swiss economics minister, Johann Schneider-Ammann? That was the question one of Switzerland’s most popular news websites, Blick, asked after the announcement was made.
German commentators have also been quick to point out that, while Germany will lose an estimated 1,600 jobs at the group’s sites in Mannheim, Stuttgart, Berlin, Mönchengladbach and Kassel, job security is guaranteed in France.
All this was part of deal that GE was forced to do in 2015 when, after months of fighting with German rival Siemens over French power company Alstom, the Americans managed to take on the latter for €8.5 billion (around US$10 billion).
“GE agreed to retain jobs in France when they took over Alstom power. That was a fixed part of the contract that will be adhered to.”
But the billions of euros were not all they had to pay. The French government and trade unions were opposed to the deal and GE had to make promises about things like job security. GE promised to create 1,000 new jobs in France in the first three years in net terms, that is, after deduction of any redundancies. Now, as worldwide demand for gas turbines for power stations is declining, other Europeans appear to be paying the price for those promises.
“We won’t comment on how job reductions will proceed in individual countries in Europe,” Michael Rechsteiner, who heads GE in Switzerland, told local media. “GE agreed to retain jobs in France when they took over Alstom power. That was a fixed part of the contract that will be adhered to. Nobody could have known that the market would change so dramatically.”
German trade union, IG Metall, immediately declared that it would oppose GE’s plans to cut jobs in Germany. Marco Sprengler, a manager at IG Metall in Freiburg and deputy chairman of the supervisory board of GE Deutschland Holding GmbH, said the job cuts were incomprehensible. The union is already fighting similar job cuts at Siemens.
“The power division, which is the worst affected by staff cuts, made a significant contribution to the group’s income for the first three quarters of 2017, with €2.11 billion [about $2.5 billion] worldwide and an operating margin of 9.5 percent.” Instead of cutting jobs, he said, GE should present a long-term investment strategy; GE employs around 10,000 workers in total at more than 50 sites in Germany.
“First Thyssenkrupp and Siemens, now General Electric,” Knut Giesler, head of IG Metall in North Rhine-Westphalia, told a local newspaper. “This is predatory capitalism. The state government must step in. They must decide whether they will continue to watch helplessly as the value of industry in North Rhine-Westphalia is eroded, or whether they will step in and work in the interests of employees.” Production of high-voltage technology in Mönchengladbach in Mr. Giesler’s home state will close down completely as will a facility making electric drives in Berlin.
Russell Stokes, head of GE Power, described the decision as “painful but necessary” and Germany GE chief, Alf Henryk Wulf, has said that the firm will try to make the job cuts in as socially responsible a way as possible. But there’s also tacit acknowledgment that the Alstom purchase may not have been the wisest course. GE’s CEO, John Flannery, has admitted that the deal has had disappointing results while still defending the strategy behind it.
The news comes about three weeks after similar plans were announced by GE’s biggest rival, German group Siemens. The latter is cutting almost 7,000 jobs in its power plant and drives business, half of which will be in Germany. Like GE, it hopes to avoid compulsory redundancies where possible. Siemens is aiming to conclude its job cuts in Germany by 2023.
The big question for both companies is whether the current slump in the gas turbine market is only temporary or a structural problem. Many analysts are skeptical. Steve Tusa, an analyst at JP Morgan Chase, is convinced that the market will be unable to grow significantly in future, due to competition from alternative energies. “It’s an adjustment to a new reality and not a cyclical problem,” he said.
According to figures from the International Energy Agency, $316 billion was invested in alternative energies worldwide in 2016, almost three times as much as in conventional fossil fuel energy production. At the same time, cleaner natural gas is taking longer than expected to replace coal as an energy source in power plants. Earlier growth forecasts have proved far too optimistic. In 2010, various industry services predicted that around 300 large turbines would be sold annually, but only 122 have been sold this year.
In the meantime, political pressure is mounting on the ailing energy giants. After the GE announcements followed Siemen’s declaration to cut jobs, at least one Berlin politician was asking questions. Berlin-based Social Democrat Swen Schulz has suggested that the German government needs to take a much closer look at the kinds of subsidies that Siemens has been getting from federal authorities for research and development – and as export subsidies.
Thomas Jahn is Handelsblatt’s New York bureau chief and Martin Wocher covers industry and the steel market for Handelsblatt. This story was adapted in English for Handelsblatt Global. To reach the authors: email@example.com, firstname.lastname@example.org.