Navistar plans to cut 10% of US workforce

Jeremy Grant writing for the Financial Times reported that Navistar, the US maker of heavy and medium-size trucks, said yesterday it planned to cut about 10 per cent of its workforce in the US, as it moves to reduce fixed costs in the face of increasingly tough market conditions.

It also said it wanted to cut by half the number of suppliers it uses to manufacture its trucks, in a sign of the pressure the industry is facing to cut costs from the manufacturing process.

John Horne, chief executive, said the Illinois-based company would start cutting about 1,400 jobs at two of its seven plants across the US in the fourth quarter and continue into the first quarter of next year.

"We've got a lot of overhead [cost] structure that we're going to be taking out. It's significant numbers of people," he told the Financial Times. The plants affected are in Springfield, Ohio and Indianapolis, Indiana.

Like other US truckmakers, Navistar is fighting weak underlying demand for heavy and medium-size trucks, often seen as a bellwether for the economy as they transport a wide variety of goods across the US.

Navistar surprised investors last week by warning it would post a fourth-quarter loss because demand for medium-duty trucks, damped by the sluggish economy, had failed to bounce back in the second half.

US truckmakers have seen strong sales this year as a result of demand for old engine models ahead of new emission standards that come into force on October 1. Engines manufactured to these new standards are more expensive.

However, the truckmakers fear demand could decline sharply once emission-driven sales dry up.

However, Mr Horne said Navistar should make a profit next year as a result of the introduction of more flexible manufacturing systems and other cost-cutting measures.

"We think our cost savings will be enough to get us in the black next year, even if market conditions remain flat," he said.

Navistar had reduced wage and benefits costs from $41 an hour in 1991 to about $30 an hour currently, Mr Horne said, adding that the aim was to reduce it to just under $25 an hour by the end of next year.

He said he wanted to cut by half the supplier base of 500-600 companies. He declined to set a timetable.

In addition, Mr Horne warned that Navistar would have to pass on some of the costs of rising steel prices to customers and suppliers.