Job Cuts and Offshoring Do Not Always Bring Profitability

Hoover Chairman and CEO Ralph F. Hake has a three-part plan, unveiled last spring, for getting Hoover back on track. He moved more production to low-wage factories in Mexico, China, and South Korea -- a move rivals had done earlier. And he began chopping jobs in the States while installing new managers.

Hoover -- begun in 1907 and a Maytag subsidiary since 1989 -- had more than 1,800 unionized employees at its facilities three years ago in North Canton, Ohio. That number has shrunk to just over 1,500 today. The employees, members of the International Brotherhood of Electrical Workers (IBEW), also approved cuts in health-care and retirement benefits in mid-December, after Maytag threatened to pull out entirely by 2005.

White-collar payrolls have been lowered even more substantially. Maytag won't give out its head count but confirms it has chopped the number of salaried workers at Hoover by 25% in the last year. Hake also installed new managers at Hoover, and he wants it to come up with new vacuum-cleaner features that will persuade people to pay premium prices.

So far, Hake's countermeasures haven't helped. Operating income at Hoover plunged 80% in the third quarter on a 20% sales drop, and Hake has warned that Hoover would pull down Maytag's fourth-quarter results, too, reducing full-year earnings by 30% from 2002. Maytag profits in 2004's first quarter should be essentially flat from a year earlier, Hake has also said.

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