Trump and Carrier Corp: The Deal That Saved 1,000 U.S. Jobs
December 6, 2016
(Episode 7 of “The Project: Inside Corporate Location Decisions”)
It started with a Thanksgiving Day tweet from Donald Trump:
I am working hard, even on Thanksgiving, trying to get Carrier A.C. Company to stay in the U.S. (Indiana). MAKING PROGRESS – Will know soon!
— Donald J. Trump (@realDonaldTrump) November 24, 2016
On December 1, just a week later, President-Elect Trump, Vice-President-Elect Pence and Greg Hayes, President of Carrier Corp’s parent company, stood on-stage together and announced that 1,000 jobs would stay in the United States and not relocate to Mexico. It was an extraordinary reversal and Carrier’s local workforce couldn’t have been happier.
So on the day of the announcement, we set-up a conference call with two highly-respected site selection consultants to get their take on this decision. You’ll hear from Larry Gigerich, Managing Director of Ginovus and Michelle Comerford, Industrial & Supply Chain Manager with Biggins Lacy Shapiro, another highly respected site consulting firm. Both firms are members of the Site Selectors Guild.
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Andy Levine (DCI): It started with a Thanksgiving Day tweet from Donald Trump, “I am working hard even on Thanksgiving trying to get Carrier Company to stay in the U.S. Making progress,” and that part was in caps, “Will know soon.
Patience Fairbrother (DCI): That was a week ago, and today Donald Trump, Mike Pence, and Carrier Corporation executives stood together in Indianapolis and announced that at least 1,000 jobs would stay in the United States and not relocate to Mexico.
Andy: So welcome to this special episode of The Project: Inside Corporate Location Decisions. I’m Andy Levine of Development Counselors International.
Patience: And I’m Patience Fairbrother, also with DCI, and Andy’s cohost of the project. Now, our normal approach is to bring you a news story of a corporate location decision every two weeks. We interview company executives, economic developers, and site selection consultants, and then put together a 10-15 minute summary of the project.
Andy: But so much for normal. This episode is going to be very different. We decided to move quickly and take a close look at Carrier Corporation’s rather extraordinary reversal of a decision to shut down an Indiana manufacturing plant and shift the jobs to Monterrey, Mexico.
That’s a move that would have saved the company a reported \$65 million per year. But President Elect Trump and VP Elect Mike Pence, also Indiana’s current governor for about another month, essentially negotiated with the company and was able to secure Carrier’s commitment to keep the plant open in the U.S., and in the process save about 1,000 jobs in Indiana.
Patience: This was pretty extraordinary news. So we set up a conference call with two highly respected site selection consultants to get their take on this announcement. Today you’ll hear from Larry Gigerich. He’s Managing Director of Ginovus, an Indianapolis based consultancy that has dozens of projects in the state of Indiana and around the U.S.
Also joining us today is Michelle Comerford, who’s the Industrial and Supply Chain Manager with Biggins Lacy Shapiro, another highly respected site consulting firm. She’s based in Cleveland, is an expert in transportation and logistics, and has advised numerous clients on site selection decisions. Both of their firms are members of the Site Selectors Guild.
Andy: So Larry and Michelle, thank you so much for joining us today for this special and unscheduled episode of the project. Welcome to both of you.
Michelle Comerford (Biggins Lacy Shapiro): Thank you.
Larry Gigerich (Ginovus): Thanks so much.
Andy: Okay, so interestingly enough we’re actually conducting this podcast at the very time that Donald Trump, Mike Pence, and the employees of the Carrier Corporation are together, and this reversal of the company’s decision or partial reversal of a company’s decision is being announced. The numbers are still a bit fuzzy, but it’s reported that this will save at least 1,000 of the 2,000 jobs that were scheduled to go to Mexico in the coming years.
That number may change a little bit based on the announcement that’s taking place at this time, but let me start out with you, Larry. So I’m just interested in your gut reaction when you first heard about this, maybe, reversal in the works and then as it really in the last two days has come to fruition. What was your gut reaction as you heard about this?
Larry: I think that my initial response was that I was pleasantly surprised. There had been a lot of dialog in the media about this was something that the President-Elect and Vice President-Elect were working on, but thinking it would be pretty difficult to pull off. So pleasantly surprised, and I thought it was great news for the families, especially this time of the year.
Andy: Okay, Michelle, give us your take as well. How did you react when you heard about this news?
Michelle: Yeah, I also was, I would say, pleasantly surprised, but hearing Trump on the campaign trail and making a lot of promises regarding improving the business climate and that type of thing I think really resonated with some companies, but I was very surprised just in the timing that he was able to then get back in front of a company as President-Elect, not even sworn in yet, and sort of negotiate a deal with them. So I thought that was pretty interesting.
Andy: Now, Larry, of course, you are actually in Indianapolis today. What is the mood and is this getting talked about a great deal in Indianapolis?
Larry: Yeah. I would say the people here are very excited. Just as an example, the morning newspaper here today, big, bold, huge headlines that, “Carrier to keep facility open.” So I think there is a lot of excitement. I think, again, people were surprised when word came out over the last couple of days that this was happening, but people here are very excited, and we had a recent announcement of a much smaller company also closing and moving operations to Mexico.
So I think there’s some question with people here about how that could impact that announcement that was made here in the last two weeks.
Andy: Let me switch gears on you here for a moment. First of all, neither of your firms are engaged by the Carrier Corporation. I think we just need to establish that. Correct?
Larry: That is correct.
Andy: Okay. But you have worked with hundreds of different companies and there always is political pressure when a plant closing is taking place, “What can we do to keep a plant in that specific location?” Can you kind of take us inside the board room and share how that conversation goes, what the discussion is like? And maybe Michelle, we’ll let you start off on this one.
Michelle: Sure. Well, it’s always a very interesting process and conversation, obviously, but typically these conversations and decisions come down to the dollars and economics of what’s viable for the business.
So when a governor or political figure kind of comes into the board room, they really are going to be most successful if they come at it with that business aptitude. Just making it about politics and sort of a pressure related to politics typically isn’t going to be able to stand up to the dollars and the cents of the deal. So typically it’s a governor in these situations, would with a business background and sort of coming at it with some solutions to help the company with cost, minimizing cost. That generally is a major factor.
Maybe there are some risk factors or considering kind of coming with a solution that kind of lines up with how the business is going at it, are usually most successful or have a shot at sort of changing a decision.
Andy: Okay. Larry, your perspective. Same question, what does that board room conversation look like? Do you concur with some of Michelle’s comments here?
Larry: Yeah, absolutely. I think it’s always an interesting dynamic when you bring together strong leaders. So as Michelle mentioned, typically in a situation like this you would have a governor come in, sometimes a mayor, but often it’s the governor leading a delegation to come in and talk to the senior executives, sometimes board members of a company, and what
I’ve always observed is just that dynamic of the face to face meeting. I think in a lot of cases people don’t value those face to face meetings as much as they used to because of technology and the way we all interact, and I think the interesting thing to watch is just that dynamic that’s in the room and how people build a relationship, even for people who’ve never met one another before, and I think a lot of it comes down to people having confidence in what will happen after a meeting.
Will people follow through? Will things get done, and relationships exist. I know as an example the Secretary of Commerce of Indiana flew out to New York, met with the Vice President-Elect, who’s still his boss as the Governor of Indiana for about a month, and then they brought in the Chairman of United Technologies to meet at Trump Plaza, and then they worked as a team to hash out a deal, and then it ended with a sit-down with the President-Elect to talk about it and how they would work together on a going forward basis.
So I think that face to face meeting, building a relationship, and people having confidence in following through on actions is really what’s important in these situations.
Andy: Going back to Michelle’s comment about the dollars and economics of this, sort of appealing to that really I think what you’re saying, Michelle, is really than rather appealing to the emotion or the political fallout, am I hearing you right, Michelle?
Michelle: Yeah, exactly.
Andy: So what would have been the potential leverage points that Mike Pence or Donald Trump would have used in terms of a dollar or economics argument? None of us obviously were in that room, but what do you think might have been those potential selling points or leverage points that they could have used?
Michelle: Well, it’s interesting because the only dollar figures that have been reported so far are about \$7 million over 10 years and some state, I’m assuming, tax credits or tax breaks, and while that’s a good amount of money, they were reporting being able to save $65 million to move to Mexico.
Andy: I think $65 million a year is the number.
Andy: So it’s a lot of money.
Michelle: Right. So 65 does not equal seven. However that’s where, kind of getting to Larry’s point, where some of the other conversation must have come into play, and I think going back to some of the things that Trump said on the campaign trail regarding his desire to lower things like the federal corporate tax rate from 35% to 15%, lessening some of the regulations, unnecessary regulations, those all contribute to that cost number, and so I’m curious or I would maybe make a guess that that was part of the conversation as well and there were likely some promises or things made in that conversation that, to Larry’s point, Carrier was able to find a level of confidence in and feel like this is likely something that will happen as well and we’ll be able also to achieve some cost savings from those things as well.
Andy: And those are things obviously that would benefit all large companies in corporate America, the ones you’re mentioning, correct, Michelle?
Michelle: Exactly. Yeah.
Andy: So Larry, let me ask you a difficult question. In the media a lot has been put forward and some of the union representation has suggested this as well, that the leverage point really could be, “Gee, United Technologies, 10% of your revenue comes from the defense budget,” and sort of pressure, “If you want to see those contracts continue, we’d like to see this move reversed.”
Do you think that became part of the discussion? Or what would your guess be? And once again, none of us were in that room, but I’m just curious if you think that was a part of the conversation.
Larry: Yeah, I would suggest from observing Donald Trump as a candidate, and obviously as a business person over the years, just what you read in the media, he is a very direct person and he loves that negotiation environment.
So you’re right, none of us were in the room, but I would have to guess that in that discussion that took place at Trump Plaza with the Chairman of United Technologies, that there was a discussion about government, work, things that were already in the pipeline, future opportunities, and certainly no promises being made, but just to say, “If you move forward with your plans to move this operation to Mexico we’re not gonna look too favorably when other opportunities come up in the future when the federal government has contracts that your company has typically been very interested in.” And I think what Michelle said is absolutely right as well. I’m sure there was a lot of discussion around corporate tax structure, the regulatory environment.
When Carrier announced besides the significant cost savings of moving into Mexico as it related to labor cost, they did spend quite a bit of time in the media here in Indianapolis and the Midwest talking about the regulatory environment and how difficult it was for the air conditioner industry with a number of changes that had occurred over the past three or four years, which is why many of those manufacturers have already gone to Mexico.
So I am confident that was a part of the discussion along with the tax and regulatory environment, and the incentives were helpful. It’s as I understand, the \$7 million, it’s about \$1 million for training, it’s \$1 million of infrastructure dollars to make improvements on the site, and then \$5 million of tax credits. So that wasn’t what swayed the decision. It’s helpful, but those other things are more important for sure.
Andy: So Larry, you started out earlier on and you said usually we see a governor leading this kind of delegation, leading this kind of discussion, and Governor Pence was obviously deeply involved here, but what is different is a President-Elect and ultimately a President being involved in this kind of discussion.
Do you think we’re gonna see more of this from Donald Trump in 2017 and beyond? And what do you think, if that’s the case, is gonna be the reaction from corporate America? Larry, maybe we start with you on this one.
Larry: Yeah, I think this is something that definitely we’ll see a President probably unlike any President in our lifetime take that strong of a posture as relates to jobs and where people make an investment, and certainly the interesting dynamic, and Michelle alluded to this earlier, is that the federal government doesn’t have a lot of direct dollars that they typically can invest into an economic development project that a company is doing.
They do things to support economic development and infrastructure and workforce development, but not specifically related to a project, and that’s typically local community and state, but I think there is going to be a leadership tone set by the President-Elect that he’ll continue to carry forward as President where he will try to use all the persuasion that he can to try to convince companies to invest in the United States and talk to them about opportunities with improved corporate tax and regulatory environment why they can be more competitive in the United States than maybe they thought they could be.
Andy: We do know he loves the art of the deal, doesn’t he?
Larry: For sure.
Andy: Let’s switch gears just leaving the specifics of the Carrier Corporation decision for the moment, and kind of a broader question. Do you think a Trump Administration is going to be good for the site selection world? Why don’t we start with you on this one, Michelle.
Michelle: Yeah. I think based on the information we have available to us right now, I would venture to say yes. I think having a President, a leader of the country who is a business man and has that business acumen and comes at the policies and regulations related to business with that in mind. He knows what is important to have in place in order to help business thrive, and if business thrives, they can in theory create more jobs, which helps the economy overall. So
I think there is a great deal of opportunity with that in mind. But there are some other challenges that we as a country will have to address as part of this as well related to specifically manufacturing, investment, and supporting that going forward. One is related to skilled labor. Part of the equation is lowering the tax environment and regulatory environment. However, just in the world that we live in and the economy that we live in, more automation is required for these companies to be competitive. With that comes a need for more skilled people, and we need more support and training programs for that to get labor truly matched up with the needs of business.
The other is related to some financial support for businesses to invest in the technology that they need to be competitive, and especially for small and mid-size companies where some of the traditional financing resources might not be feasible for them for different reasons. So what ways can we help support, and not saying that it’s a federal or even pure government issue, but it is something that needs to be addressed as part of support for investment going forward. So those things will have to align along with the policy changes that Trump’s proposing.
Andy: And skilled labor is a much thornier issue, isn’t it?
Michelle: Absolutely. You could have a whole 45 minute podcast on that alone, but there definitely is a disconnect between business needs and some of the academic and training. We’ve seen some improvements in some areas, but nationwide we have a disconnect on that.
Andy: So Larry, what are you hearing from your clients? Are they bullish on investing in new projects? Are some of them looking at bringing jobs back to the U.S. that were outsourced previously? What are you hearing right now?
Larry: Yeah, I think after the election in particular there was some level of optimism among business leaders, and I think it was for no other reason than we feel like we have at least a little bit more certainty in terms of direction on how things move forward. There’s nothing a corporate decision maker likes less than uncertainty or some level of predictability. When you’re talking about making investments of tens of millions of dollars and really positioning your company for success in the future when you do a project, a long-term view, that I think is something that helps.
I think at least while we don’t know how everything will sort itself out, I think people believe that there will be an improved regulatory and tax climate. I think in particular there has been in the last couple of years as we’ve seen with some of our clients, looking at opportunities to either bring things back to the U.S. or if things were in other places like Asia, at least bring them back into this hemisphere, the near-shoring description.
So I think there has been intent. We’ve been involved with a couple of projects, one that was manufacturing, one that was more sort of white collar type of project where those were being done other places and they’ve come back to the United States in the last year or two. I think there’s a little bit more energy around that and I think there’s also people interested in helping with the rebuilding of our economy, but as Michelle said earlier, you still have to have a number of things line up.
There’s still always going to be economic pressures and there’s also things from a quality perspective that are going to have to be addressed. So again, I think people feel like there’s more certainty. I think there’s a level of optimism out there, I think people are willing to look at things, doing things in the United States that perhaps they weren’t in the past, and then hopefully some of these things will come to fruition relatively quickly on the tax and regulatory side, which would really I think jump-start some activity.
Andy: So that is a wrap on this special and unscheduled episode of The Project: Inside Corporate Location Decisions.
Patience: We’d like to thank both Larry Gigerich of Ginovus and Michelle Comerford of Biggins Lacy Shapiro for joining us on the phone today. They are both very busy people and we appreciate them making the time for us.
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