This article incorrectly said that Oshkosh, Wis., is 80 miles northeast of Milwaukee. The city is about 80 miles northwest of Milwaukee.
Pentagon contract saves jobs at Wisconsin truckmaker Oshkosh Corp.
Saturday, December 19, 2009
OSHKOSH, WIS. -- Just as the recession was threatening the Oshkosh Corp. with ruin, after builders stopped ordering drywall lifters and cement mixers, and cities stopped buying fire engines and garbage trucks, the little-known specialty truck company went after a long-shot Pentagon contract.
Its bid to build a 24,700-pound armored truck for the front lines of Afghanistan pitted Oshkosh against much bigger and better-known contractors. But Oshkosh engineers went hard after the deal, designing a suspension system that allows each wheel to slide up or down by as much as 16 inches as the truck drives through ruts or over rocks, carrying five soldiers up inclines of 60 percent in forward and reverse. Not only that, Oshkosh had so much idle capacity at its factories that it could get to work immediately and deliver trucks to Afghanistan speedily.
Oshkosh won the $3.2 billion deal this summer and hired 600 workers, helping to lower the city's unemployment rate to 7.6 percent this fall from a high of 9.5 percent. And after taking a $1 billion loss in fiscal 2009, the company is on the mend. It landed several other military deals as well, most recently for 400 more armored trucks, and in November reported its first profit from continuing operations after three quarterly losses. It says it expects to be "solidly profitable" next year.
Oshkosh is among a number of manufacturers trying to figure out how to retool their assembly lines in an effort to survive changes wrought by the recession. Many see the quarter-trillion dollars a year that the Pentagon spends with defense contractors as a potential lifeline, which has made always sought-after defense contracts even more hotly contested.
That appeal has put Oshkosh in the middle of a fight to hold onto a different contract, worth up to $3 billion, to make more than 23,000 medium-sized trucks and trailers for the Army. In August, Oshkosh beat out two heavyweights in the defense industry -- Navistar and BAE, which is Europe's biggest weapons maker and has been producing a line of the trucks for 17 years. The losers, who had also competed for the Afghanistan armored trucks, protested the decision with the Government Accountability Office.
On Monday, the GAO said the Army's evaluation of part of Oshkosh's proposal for that contract was "flawed," and it advised the Army to re-examine the bids. The Army has 60 days to respond.
The competition has launched a debate about whether jobs should be considered in awarding contracts. The Air Force's effort to build a new aerial refueling tanker offers another example. Some congressional leaders and economic development officials argue that the number of jobs created or cut should be a factor, especially given the country's poor economy and rising unemployment.
"This is the only country in the world where major weapons contracts are awarded without any thought to their economic impact," said Loren Thompson, a defense industry consultant at the Lexington Institute.
While the Pentagon does consider questions of price, technology, quality and other factors on a weapons program, it doesn't consider job creation specifically, and some say that it shouldn't.
"The DOD is not a social-service organization," said Jacques Gansler, who served as the Pentagon's top weapons buyer in the Clinton administration. "Its mission is providing national security for the nation. Its mission is not to provide subsidies for jobs. The DOD is not in the business of employing people for the sake of employing them."
In the Houston area, where BAE builds its medium-sized trucks, politicians and economic development leaders say losing the contract could mean the end of more than 3,300 jobs and cost the economy an estimated $1.8 billion annually. For Oshkosh, defense industry analysts say losing the contract could mean job reductions and a loss of up to $800 million a year in sales.
Oshkosh has been more agile than many in becoming more of a player in the defense industry, military analysts say, increasing its Pentagon business in the past year to $2.5 billion, or nearly 50 percent of its annual sales from 27 percent of its total sales.