GM, Ford idle 1,365 workers—auto industry layoffs signalcoming downturn in US economy
By Jerry White
27 May 2000
In the most significant cutbacks in the industry in nearlya decade, the number one and two US automakers announced Thursdaythat they plan to lay off 1,365 workers. In July, Ford Motor Co.and Mazda Motor Corp. will lay off 945 workers at their jointventure plant in the Detroit suburb of Flat Rock, Michigan, andreduce operations from two shifts to one. On June 12, GeneralMotors' Saturn division plans to idle 490 of 2,413 workers atits assembly plant outside of Newport, Delaware and permanentlyswitch to a single day shift.
The moves come as US auto companies are reducing overtime inmany assembly plants and closely monitoring levels of unsold carsin dealer showrooms. The layoffs and production cutbacks followlast week's half-point interest rates by the Federal Reserve Boardand indicate that the industry anticipates lower sales in thisyear's second half.
“We are seeking the early signs of retrenchment and thatincludes some layoffs,” said David Littman, chief economistfor Comerica Bank in Detroit. “This is a result of high oilprices along with a stock market that goes sideways and down becauseof higher interest rates.” Like home buying, auto sales arehighly sensitive to increases in the cost of loans.
The midsize models at the affected plants—the MercuryCougar, Mazda 626, and Saturn LS sedan—all suffer from lacklustersales, although US car sales in general are continuing to runat record levels. These vehicles face intense competition anda glutted midsize market, that includes better-selling modelssuch as the Honda Accord, Toyota Camry and Ford Taurus.
But inventories are growing for many vehicles—despitethe record US sales—as manufacturers continue to introducenew models in an effort to gain market share from their competitors.This has led to bloated stockpiles of vehicles and eroding profitmargins, even among sports utility vehicles and light trucks thathave been a major source of cash for US car companies over thelast decade.
Earlier this month, Ford said it was cutting back productionby 25 percent of its huge Excursion SUV (which had netted thecompany $18,000 in profit per vehicle) because of weaker thanexpected demand. Meanwhile, DaimlerChrysler AG is cutting overtimeat its US factories that build the Dodge Durango and Jeep GrandCherokee SUVs.
The move at Saturn comes less than a year after the new midsizeL Series line was launched and ends five months of speculationamong workers who have been through a series of production cuts.General Motors' decision in the mid-1990s to build the midsizeSaturn in Wilmington kept alive a 50-year-old plant that had beentargeted for closure.
The laid-off Ford and GM workers qualify for up to 42 weeksof nearly full pay, as required under the United Auto Workersunion contract, and company spokesmen said some workers mightbe reassigned to other plants. However, the production cutbacksare expected to reverberate throughout the industry and the USeconomy as a whole, leading to layoffs at auto parts plants andthe reduction of overtime for other workers.
There are other signs that the US economy is headed for a downturn.Durable goods orders in the US—widely viewed as a good indicatorfor the state of the manufacturing industry—fell by 6.4 percentin April, the biggest fall since the recession year of 1991. InMarch, durable goods orders were up 4.5 percent.
A drop in durable goods—which include big ticket itemssuch as cars, aircraft and washing machines, which are expectedto last more than three years—often precedes a general slowdownin the economy. The drop was led by a fall of 20 percent in electronicgoods like video recorders and semi-conductors, the largest dropon record.
Sales of existing homes also fell by 6.2 percent in April andoverall consumer spending grew at only half the rate of increaseover the past six months. Many experts believe that consumer spendingwill slow further when people realize the extent of their stockmarket losses in the past month.
As for the growth of the US economy as a whole, a report releasedearlier in the week showed that the Gross Domestic Product (GDP)has slowed from more than 7 percent in the last three months of1999, to 5.4 percent in the first three months of this year. Consumerspending, which makes up two-thirds of the entire economy, hasbeen the engine of GDP growth.
These figures indicate that the six interest rate hikes bythe Federal Reserve board are beginning to slow down the economy.Fed chairman Alan Greenspan has repeatedly made clear his willingnessto raise interest rates—even at the risk of driving the economyinto a recession—in order to increase joblessness and preventa push by workers for improved wages and benefits.
On Thursday, the US Labor Department said first-time claimsfor state unemployment benefits rose 6,000 to 284,000 in the weekending May 20. That followed a 20,000 drop the week earlier andleft the average for claims this year at 278,000, down from lastyear's average of 298,000.
In addition to the auto layoffs, a number of companies, acrossa wide array of industries, announced new job cuts this week.
LTV Corp.'s steel subsidiary plans to close LTV Steel MiningCo., a Minnesota operation that employs 1,400 people and produced7 million tons of taconite iron ore pellets used in making steellast year. LTV Steel Mining is the oldest continuously operatingtaconite mining operation on the Minnesota Iron Range, beginningproduction in 1957.
Maytag Corp. plans to lay off 120 workers in its Newton LaundryProducts division to limit production in response to slumpingappliance sales. Workers said the layoff notice—effectiveJune 2—was posted in the plant early Wednesday. “Wehad no clue until we came into work this morning,” said AnitaBayles, who builds water valves and puts them on Maytag DependableCare washers.
Seagate Technology Inc. will close its Anaheim, Californiacomputer hard disk-manufacturing plant in a move that will eliminate600 jobs and shift production to a factory in Northern Irelandwhere labor costs are cheaper. Seagate also plans to close a sisterplant in Mexicali, Mexico, where 590 workers will be idled. Sincelast September, Seagate, which lost $136 million in the firstquarter, has closed plants in Singapore, Thailand and NorthernCalifornia and laid off nearly 18,000 employees.
Business-to-business software maker, J.D. Edwards, announced800 job cuts. A series of Internet companies announced cuts ofbetween one-third and one-half of their staffs as investment driesup and a wave of mergers and consolidations that is expected tocome over the next several months. Over the past few weeks dot.comcompanies Kbkids, Quepasa, PetPlace, carOrder and Total Sportshave announced hundreds of layoffs.
Alta Vista, the Palo Alto, California-based Internet searchengine, announced plans to eliminate 6 percent of its workforceand said it will postpone its Initial Public Offering until thefall.
See Also:
US Federal Reserve raises interest ratesin preemptive move against wage increases
[18 May 2000]
US trade deficit hits new monthly record
[25 May 2000]