By Carol Roth, CNBC Contributor and Business Strategist | CNBC – 18 hours ago...
The sequester may be affecting some of the United States' defense budget, but not the part of that is the U.S. Army's Product Improvement Program, which is set to upgrade the Army's old issue M4 rifles to newer M4A1 models.
According to Military.com , after a dramatic bidding and re-bidding process, the M4A1 contract, with an estimated value of approximately $77 million, is going not to incumbent manufacturer Colt Defense nor Remington Arms (owned by Freedom Group), but to a foreign company, FN Herstal. The initial part of the contract award - around $9.3 million worth - was posted at the government's Federal Business Opportunities site earlier this month.
While FN Herstal has its manufacturing plant in South Carolina, the company itself is a subsidiary of the Herstal Group, which, according to its website, "... has been 100 percent owned by the Walloon Region of Belgium," or in other words, the government of Belgium. So, while net-net, manufacturing jobs are preserved in the U.S., the profits go to a foreign entity, which could also engender a loss of sales, administrative and other jobs in the U.S.
So, how does this happen?
FN Herstal underbid both Remington and Colt - in the case of Remington, by a margin of about $7 million. They may have had the luxury to do so because their South Carolina plant is in a "right to work state," where individuals can decide whether they want to join a union or pay union dues. Contrast that with Colt Defense, who had to give UAW union workers at its Connecticut plant a 5.5-percent raise over the past two years. That translates into higher costs for Colt to manufacture its products.
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UAW regional director Julie Kushner said upon the announcement of the union wage hike at Colt Defense, "being able to save jobs allows members to continue producing quality goods that support their families, community and our country." While the pay hike was completed under the guise of helping the union workers, it has quite likely helped those same workers right out of a job by not allowing Colt to be competitive with the South Carolina-located, foreign-owned FN Herstal.
Even Remington, which is based in North Carolina and has manufacturing plants throughout the south, planned to manufacture the M4A1 rifles in its major Ilion, N.Y., facility. New York is another state without right-to-work laws and the Ilion facility is also a union shop, a cost factor in its government bid.
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The irony of the situation is that not only have these unions, in seeking to protect their members, hurt them, the companies they work for and the communities that they work in, but the political ideology that has tried to preserve the unions for the benefit of the country has now sent taxpayer dollars to a foreign entity in the form of profits.
There is a lesson to be learned for the unions, for the states and for our country of the ongoing challenge for businesses located in non-right-to-work states. If our own government is willing to give a defense contract to a foreign-owned entity over multiple, capable U.S.-owned entities - including one that incumbently held the previous contract - because of pricing, other entities will be focused on pricing too. States that continue to prioritize union ideology over the need to be competitive in a national and global marketplace may end up with no work at all.