Facing increased budget pressures, the U.S. Army is looking for ways of reducing costs. One step it has come up with is to shut its sole plant for manufacturing M-1 tanks for three years. Beginning in 2013, the Army wants to close the doors at the Lima Army Tank Plant (LATP) in Ohio until 2016 when it would reopen the facility. The Army argues that it will cost more to keep the plant open at a minimum level of operation than to simply put tarps over the machinery, let all the workers go and close the doors temporarily.
The Army’s strategy, to put it mildly, is risky. Because the government owns the plant and most of the equipment, it does not have to worry about losing access to the facility. However, it would have to worry about losing the engineering talent, skilled workforce and network of more than 500 subcontractors that make Lima a world class facility. When it comes to major activities such as closing military facilities and moving functions among facilities or eliminating contractor positions and insourcing work, the Pentagon always assumes minimum impacts on work forces and productivity. But historically the consequences have tended to be more severe. The workforce, particularly skilled workers, don’t hang around for three or four years. Training new workers and recertifying suppliers takes longer and costs more than what had been projected when the decision was taken years earlier.
According to published reports, the Army’s analysis suggests that the costs of shutting and restarting LATP would not exceed $800 million while continuing to run the facility even at a minimum level would require up to $2.1 billion. That is a significant difference. However, the company that operates the Lima facility, General Dynamics, has different figures: $1.6 billion to restart the facility versus $1.3 billion to keep it operating.
The Army has no experience with shutting down and restarting a major facility such as LATP. As a result, its assumptions regarding both the costs and time involved may be wrong. It could take longer than anticipated to restart the plant. Anyone familiar with starting up a large industrial scale production facility understands the problem of the learning curve. While new workers are learning their skills and the production line is coming up to speed there are always problems in both the production rate and quality of the work. The idea that the Army can simply snap its fingers after four years and have a fully functioning tank production line is not credible.
The last time the Army considered closing LATP was in the early 1990s, at the start of the post Cold War drawdown. According to a Congressional Budget Office report at the time, the Army said that shutting the plant down for five years would cost over $500 million (1993 dollars) in shut down and maintenance costs and $1.1 billion to restart the line. In 2011 dollars these costs would be more than double, raising questions about the Army’s current estimate of only $800 million. Moreover, the CBO report says that it would take six years to restart the plant and that the first vehicles off the line might not be of high quality. This analysis suggests that the Army is seriously underestimating the costs and difficulty of shutting and restarting LATP.
Equally important, the Army’s key assumptions in the 1990s about the demand for new production and modernization turned out to be wrong. There was significant foreign demand for M-1s, particularly from Egypt and Saudi Arabia. Then the threat changed and the Army initiated multiple programs to upgrade existing M-1s. The Army likes to talk about the challenges of operating in an era of uncertainty. Does it make sense, given those uncertainties to shut down the nation’s only plant for manufacturing and upgrading tanks?
The Army’s proposal to temporarily close the Lima facility is based in part on a plan for construction of new armored vehicles, notably the Ground Combat Vehicle (GCV). Such programs will help keep the armored vehicle industrial base warm, reducing the risks associated with the shuttering of LATP. However, the GCV program is a high risk venture which may not come to fruition. If there is no GCV program, shutting LATP would constitute an even bigger mistake.
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