Israel Slashes Defense Spending, Putting a U.S. Factory at Risk

Lima, Ohio, plant produces Abrams tanks and Namer APCs -- but now, fewer of the latter.

Jan 12, 2014 at 9:51PM

In 2010, in a landmark deal with a U.S.-based defense contractor, Israel agreed to outsource production of a variation on its famed Merkava main battle tank to General Dynamics (NYSE:GD). Over the course of eight years, General Dynamics would produce "kits" for assembling 386 Namer heavy armored personnel carriers at a cost of $730,000 per unit -- $281.8 million in all.

Israel's Merkava Mk IV. Source: Wikimedia Commons.

Lacking a Merkava's gun turret, a Namer is still a formidable beast. Each APC weighs some 60 tons and sports a battery of machine guns, grenade launchers, and even a mortar -- and carries a crew of three, and a squad of eight infantry within its steel hull. It boasts self-contained air-conditioning, permitting the vehicle to operate in areas contaminated by chemical weapons.

This contract marked the first major mass co-production effort between the U.S. and Israel. Ultimately, the parties anticipated that General Dynamics could win more than $800 million in orders for Israeli Namers.

But now, it looks like the contract will be cut short at just $150 million and change.

Soldiers from A Company, 1st Battalion, 29th Infantry Regiment, maneuver around an Israeli Namer during the Maneuver Battle Lab's 2012 Ground Combat Vehicle assessment at Fort Bliss, Texas. Source: Wikimedia Commons.

Thanks, but no (more) tanks
As reported by over the weekend, Israel has drastically reduced the number of Namers to be purchased under its new five-year defense budget. So far, General Dynamics has delivered only seven Namers. At most, a total of 170 of the APCs will be produced, with production ending as early as 2017. Under the terms of the contract, General Dynamics will probably demand payment of a $17 million penalty for reducing the volume of the order, raising the per-unit cost to about $900,000. The bigger cost, though, may come to American jobs.

General Dynamics produces the Namer chassis at its Abrams main battle tank in Lima, Ohio. At one point, the plant employed 1,200 American workers. Reductions in Abrams production, however, have cut that workforce about in half. Layoffs could increase if the U.S. Army ceases Abrams production in 2016, as planned.

The Israeli Namer contract offered General Dynamics a chance to keep the factory open and operational until the U.S. Army begins placing orders for the next generation of the Abrams in 2019. Now it looks like the plant may have to close down after all, and those workers will be laid off -- at least temporarily.

In perhaps the cruelest cut of all, U.S. taxpayers will be paying for the higher per-unit cost of the Namers, necessitated by the lower level of production, and for the $17 million in contract penalties -- all of which is funded out of the $3.1 billion in foreign military aid the U.S. gifts to Israel annually. In addition, if the production cuts force the Lima plant to close for some years before it reopens in 2019, the U.S. Army estimates the cost of shutdown and start-up could exceed $800 million.

That's more than it would have cost for the entire anticipated production run of the Namer, before they cut it.

Let the other guy buy a "good" stock. You deserve a "better" stock
There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers