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Contract worker cuts may delay vehicle plans

As automakers and Tier 1 suppliers slash their contract workers budgets, new vehicle programs run the risk of delays as service agencies struggle with the abrupt revenue cut.

Last week, Ford Motor Co. and its former parts unit Visteon Corp. said they are enacting a 7 percent reduction in their contract employment payments.

Ford has about 6,000 affected contract employees, and Visteon has 1,100. They work in engineering, information technology, clerical and administrative fields.

Ford also is bringing an unspecified number of contract IT employees in-house as Ford employees partly to save on agency expenses.

Both companies use MSX International Inc. of Auburn Hills, Mich., to administer their contract labor through a service called PeopleNet.

Ford and Visteon are letting their contract suppliers - MSX, Manpower Inc. and Kelly Services, among them - decide how to account for the revenue cut.

Ford's cut is effective Nov. 19; Visteon's was enacted Nov. 5.

Wage cuts may be weighed

MSX told employees it would cut their pay by 7 percent as of Monday, Nov. 5.

Manpower and Kelly are absorbing the hit at least through the end of the year, but wage reductions could be considered in 2002. That decision to hold off will cost Manpower a six-figure amount through the end of 2001, a company executive said.

The cuts are likely to result in further price pressure from other automotive customers, one industry analyst said.

"If they (MSX officials) are willing to cut the price at MSX, it's very likely that GM and Chrysler will ask for the same thing," said Sean McAlinden, director of the economics and business group at the Center for Automotive Research in Ann Arbor, Mich.

General Motors already has slashed some contract workers in 2001 as part of a 5,000-employee white-collar job reduction announced last December. Manpower Metro Detroit, for instance, has lost more than 200 GM placements, President Pam Berklich said.

"We've experienced, as all suppliers in the automotive industry have this year, a very challenging, tough year with fewer services required and cutbacks in the current level of service provided and reductions in revenue," Berklich said.

Contract agencies already struggle with low profit margins on their automotive accounts, and they are likely to pass revenue cuts on to employees, either in the form of lower wages or job reductions, McAlinden said. But outright wage cuts, such as MSX's, have been rare in the decades since the Depression, he said.

Impact on programs

Depending on how they are handled, the pass-through could affect client projects and new vehicle programs, observers said. Many vehicle programs already have been delayed this year, especially at Ford, McAlinden said.

"If we don't staff them properly, then we're going to delay the launch of those programs," Berklich said. "I only hope we've learned from (past mistakes), and we don't cut out critical programs."

Ford spokeswoman Della DiPietro said program delays aren't a likely outcome.

"Our product programs are key to our future, and actions of this sort are being taken so we can continue to invest in new products."

You can reach Amy Wilson at awilson@crain.com

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