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General Tobacco makes job cuts in Mayodan
Company cites 'downturn in consumer spending' as reason for laying off 31
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Published: November 18, 2008
Sagging consumer demand for discount cigarettes has led General Tobacco Co. to cut nearly 25 percent of its work force in Mayodan.
General laid off 31 employees last week -- 28 in its production and warehouse units and three in its administrative offices -- Ronald Denman, an executive vice president and general counsel, said yesterday. He said that the job cuts have affected the second and third shifts.
Denman attributed the cuts to "the sweeping downturn in consumer spending."
"Our shipments have slowed down, so we don't need to make as much product right now. It is our sincerest hope that this economic hardship, being felt by all, will pass quickly so that we may bring these employees back, who we consider family."
Denman also said that competitors discrediting the manufacturer to wholesalers and retailers may have played a role in the sales decline.
"There is a lot of misinterpretation in the marketplace about our products," Denman said.
A survey of local tobacco wholesalers said they are not aware of any such strategy by General's rivals.
The job cuts have forced General to reverse its growth strategy, at least temporarily.
General moved to Mayodan from Miami to be closer to the U.S. tobacco industry. It began production in March with a work force made up of some former employees of manufacturers such as R.J. Reynolds Tobacco Co. and Lorillard Tobacco Co.
General had increased its full-time work force to 126 before the job cuts, said Melisa Chantres, a spokeswoman for the company. General has pledged to create at least 200 jobs by 2010 as part of becoming eligible for up to $3 million in performance-based local incentives.
On Oct. 28, General filed a lawsuit in U.S. District Court in Louisville, Ky., against 52 attorneys general of the United States and its territories and 19 American and foreign tobacco companies.
The manufacturer is aiming at the landmark 1998 Master Settlement Agreement between the U.S. tobacco industry and state attorneys general. General has said that the lawsuit could determine its fate. It is pursuing damages of more than $1 billion from competitors that include Lorillard, Reynolds and Philip Morris USA.
General also is pursuing a preliminary injunction to avoid the terms of the agreement.
Without the injunction, Denman said, the attorneys general could delist General's brands from a list of government-approved tobacco products. Companies that are not on the list have difficulty getting their products onto market.
"Our competitors are going to retailers and wholesalers and portraying the lawsuit as a doomsday scenario for us," Denman said.
"Because we're not on a level playing field with the larger manufacturers because of the MSA, we don't have the extra money to counter their claims.
"There is nothing illegal about our products."
Denman said that a judge is expected to rule Dec. 2 on a motion by the attorneys general and tobacco manufacturers to dismiss General's lawsuit. A hearing on General's request for the preliminary injunction could be held Dec. 10-12, he said.
"We believe the lawsuit lacks legal merit," said David Howard, a spokesman for Reynolds. "Lawsuits making similar claims to General Tobacco have been made since 1998, and courts have uniformly rejected those claims."
The layoff is not a good sign for the industry, given that many smokers tend to switch to discount brands during tough economic times, said Stephen Pope, the chief global-market strategist with Cantor Fitzgerald Europe.
"It really does look as though we are seeing household budgets being squeezed as never before in living memory," particularly by rising unemployment rates in the United States, Pope said.
"Discounters and cheaper brand producers are all going to see an erosion of the customer base."
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
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