Mabe to close Quebec factory, layoff 700 by 2014

Quebec’s ailing employment picture has suffered yet another blow with the announcement by Mexican home appliance maker Controlodora Mabe S.A. de C.V. that it is shutting down a dryer manufacturing factory in Montreal’s east end.

Some 700 workers will lose their jobs as production winds down gradually toward a scheduled close by the end of 2014, Mabe said Thursday. The company blamed the high value of the Canadian dollar and soft consumer demand for the move. It said producing dryers in Quebec is unsustainable given that 90% of the plant’s output is exported to the United States.

Mabe is the manufacturer, distributor and marketer of General Electric appliance brands throughout Canada. It also owns the Moffat brand.

“There is no path to profitability for the plant, not even with significant government subsidies coupled with wage concessions from the union – the gap is simply far too large,” Michael McCrea, vice president of operations for Mabe Canada said in a statement. “The decision to close the plant was deemed necessary and is final.”

The strength of the Canadian dollar against other currencies, and the U.S. dollar in particular, has been a drag for Canadian-based exporters as the cost of making their goods in Canada increases relative to sales. The loonie has risen 25% in value against the greenback in the past two years alone. It is now trading roughly at par with the U.S. dollar.

Canada tallies about half of its export revenue from the sale of raw materials, including crude oil.

Mabe’s announcement comes almost one year after Swedish appliance giant AB Electrolux confirmed it would shut down a manufacturing plant, also in Montreal’s east end, that makes cooking appliances. It said at the time the Montreal plant was “not a viable site.” The work was transferred to Memphis, Tenn., costing 1,300 jobs. In this case, the work will also be shifted to other Mabe plants in Mexico and the United States.
Analysts speculate that the unionization of the workforce of both companies was a factor in the decisions.

They say it’s no accident that manufacturers such as Kia, Boeing Co. and Volkswagen AG have chosen to locate new facilities in southern U.S. states that have right-to-work laws, by which workers can’t be forced to join a union or pay union dues to get a job. Wages are typically lower in states with such laws.

Quebec has lost nearly 70,000 jobs over the past three months, including 8,000 in manufacturing. It’s a bloodletting that has not been seen since the 15-month recession of 1981-1982. The unemployment rate now stands at 8.7%, higher than that of the United States.

Economists are somewhat puzzled over the numbers, questioning whether they are merely a blip or whether Quebec is experiencing trouble that will hit other provinces in the months ahead.

Quebec weathered the 2008 recession better than most other jurisdictions, in part because its government initiated a $41.8-billion, five-year infrastructure spending renewal program that was well underway during the worst of the downturn.

But the province has been losing manufacturing jobs for years. The last time Quebec experienced a creation of manufacturing employment was in 2004. Since then, the number of people employed in the sector has dropped 25%, to 474,000 from 633,000, according to National Bank.

“We’re used to this” kind of job loss in manufacutring, said Marc Pinsonneault, senior economist with the bank. “But it’s the larger number, the 70,000 in three months, that’s not normal.”

Mabe said it took “all reasonable options” to try to make the Montreal plant financially viable and that it has worked closely with employees to try to boost productivity. Almost half of the factory’s staff will remain in their jobs until the facility closes, Gabe said.

One union leader said his members were “in shock” at the closure announcement. But company officials insist they have clearly communicated the plant’s financial difficulties with workers. The plant is currently operating at less than half capacity, the company said, and has generated extensive negative cash flow over the past six years.

Source: Financial Post