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GM, Ford idle 1,365 workersauto industry layoffs signal
coming downturn in US economy
By Jerry White
27 May 2000
this version to print
In the most significant cutbacks in the industry in nearly
a decade, the number one and two US automakers announced Thursday
that they plan to lay off 1,365 workers. In July, Ford Motor Co.
and Mazda Motor Corp. will lay off 945 workers at their joint
venture plant in the Detroit suburb of Flat Rock, Michigan, and
reduce operations from two shifts to one. On June 12, General
Motors' Saturn division plans to idle 490 of 2,413 workers at
its assembly plant outside of Newport, Delaware and permanently
switch to a single day shift.
The moves come as US auto companies are reducing overtime in
many assembly plants and closely monitoring levels of unsold cars
in dealer showrooms. The layoffs and production cutbacks follow
last week's half-point interest rates by the Federal Reserve Board
and indicate that the industry anticipates lower sales in this
year's second half.
We are seeking the early signs of retrenchment and that
includes some layoffs, said David Littman, chief economist
for Comerica Bank in Detroit. This is a result of high oil
prices along with a stock market that goes sideways and down because
of higher interest rates. Like home buying, auto sales are
highly sensitive to increases in the cost of loans.
The midsize models at the affected plantsthe Mercury
Cougar, Mazda 626, and Saturn LS sedanall suffer from lackluster
sales, although US car sales in general are continuing to run
at record levels. These vehicles face intense competition and
a glutted midsize market, that includes better-selling models
such as the Honda Accord, Toyota Camry and Ford Taurus.
But inventories are growing for many vehiclesdespite
the record US salesas manufacturers continue to introduce
new models in an effort to gain market share from their competitors.
This has led to bloated stockpiles of vehicles and eroding profit
margins, even among sports utility vehicles and light trucks that
have been a major source of cash for US car companies over the
Earlier this month, Ford said it was cutting back production
by 25 percent of its huge Excursion SUV (which had netted the
company $18,000 in profit per vehicle) because of weaker than
expected demand. Meanwhile, DaimlerChrysler AG is cutting overtime
at its US factories that build the Dodge Durango and Jeep Grand
The move at Saturn comes less than a year after the new midsize
L Series line was launched and ends five months of speculation
among workers who have been through a series of production cuts.
General Motors' decision in the mid-1990s to build the midsize
Saturn in Wilmington kept alive a 50-year-old plant that had been
targeted for closure.
The laid-off Ford and GM workers qualify for up to 42 weeks
of nearly full pay, as required under the United Auto Workers
union contract, and company spokesmen said some workers might
be reassigned to other plants. However, the production cutbacks
are expected to reverberate throughout the industry and the US
economy as a whole, leading to layoffs at auto parts plants and
the reduction of overtime for other workers.
There are other signs that the US economy is headed for a downturn.
Durable goods orders in the USwidely viewed as a good indicator
for the state of the manufacturing industryfell by 6.4 percent
in April, the biggest fall since the recession year of 1991. In
March, durable goods orders were up 4.5 percent.
A drop in durable goodswhich include big ticket items
such as cars, aircraft and washing machines, which are expected
to last more than three yearsoften precedes a general slowdown
in the economy. The drop was led by a fall of 20 percent in electronic
goods like video recorders and semi-conductors, the largest drop
Sales of existing homes also fell by 6.2 percent in April and
overall consumer spending grew at only half the rate of increase
over the past six months. Many experts believe that consumer spending
will slow further when people realize the extent of their stock
market losses in the past month.
As for the growth of the US economy as a whole, a report released
earlier in the week showed that the Gross Domestic Product (GDP)
has slowed from more than 7 percent in the last three months of
1999, to 5.4 percent in the first three months of this year. Consumer
spending, which makes up two-thirds of the entire economy, has
been the engine of GDP growth.
These figures indicate that the six interest rate hikes by
the Federal Reserve board are beginning to slow down the economy.
Fed chairman Alan Greenspan has repeatedly made clear his willingness
to raise interest rateseven at the risk of driving the economy
into a recessionin order to increase joblessness and prevent
a push by workers for improved wages and benefits.
On Thursday, the US Labor Department said first-time claims
for state unemployment benefits rose 6,000 to 284,000 in the week
ending May 20. That followed a 20,000 drop the week earlier and
left the average for claims this year at 278,000, down from last
year's average of 298,000.
In addition to the auto layoffs, a number of companies, across
a wide array of industries, announced new job cuts this week.
LTV Corp.'s steel subsidiary plans to close LTV Steel Mining
Co., a Minnesota operation that employs 1,400 people and produced
7 million tons of taconite iron ore pellets used in making steel
last year. LTV Steel Mining is the oldest continuously operating
taconite mining operation on the Minnesota Iron Range, beginning
production in 1957.
Maytag Corp. plans to lay off 120 workers in its Newton Laundry
Products division to limit production in response to slumping
appliance sales. Workers said the layoff noticeeffective
June 2was posted in the plant early Wednesday. We
had no clue until we came into work this morning, said Anita
Bayles, who builds water valves and puts them on Maytag Dependable
Seagate Technology Inc. will close its Anaheim, California
computer hard disk-manufacturing plant in a move that will eliminate
600 jobs and shift production to a factory in Northern Ireland
where labor costs are cheaper. Seagate also plans to close a sister
plant in Mexicali, Mexico, where 590 workers will be idled. Since
last September, Seagate, which lost $136 million in the first
quarter, has closed plants in Singapore, Thailand and Northern
California and laid off nearly 18,000 employees.
Business-to-business software maker, J.D. Edwards, announced
800 job cuts. A series of Internet companies announced cuts of
between one-third and one-half of their staffs as investment dries
up and a wave of mergers and consolidations that is expected to
come over the next several months. Over the past few weeks dot.com
companies Kbkids, Quepasa, PetPlace, carOrder and Total Sports
have announced hundreds of layoffs.
Alta Vista, the Palo Alto, California-based Internet search
engine, announced plans to eliminate 6 percent of its workforce
and said it will postpone its Initial Public Offering until the
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