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Auto belt-tightening clips contract workers

Cutting back
These 6 companies have reduced the number of contract workers they use or cut back on pay.

1. Ford

2. GM

3. Delphi Automotive Systems

4. Visteon

5. Lear

6. Johnson Controls

In their zeal to cut costs, automakers and auto suppliers are clipping away at contract employees and their wages.

Lear Corp., Johnson Controls Inc.’s Automotive Group, Delphi Automotive Systems Corp., and other automotive suppliers either have plans to ask for 7 percent price reductions from suppliers of contract employees or already have made the trims.

Those requests followed 7 percent price cuts mandated by General Motors this month and 7 percent price reductions mandated by Ford Motor Co. and Visteon Corp. in November.

Delphi, which already has asked for the 7 percent reduction, is reducing the number of its contract employees by 35 percent, said Claudia Piccinin, Delphi media relations coordinator for corporate affairs. She would not say how many contract employees Delphi uses.

“We’re looking for initiatives for 2002,” she said. “We’re looking for cost savings. This is just one area of pending cuts.” Piccinin said Delphi also is reducing travel, overtime hours and discretionary spending for Delphi employees.

Technical-staffing companies are bracing for another difficult year because of the price cuts.

The price reductions are deeper than the technical-staffing industry has seen in at least 20 years, said Jim Cowper, general manager of TAC Automotive Group in Bloomfield Hills, Mich., a division of TAC Worldwide Cos. in Newton, Mass.

Pat Hughes, vice president of the GM and DaimlerChrysler divisions of Troy Design Inc. in Troy, Mich., said he doesn’t know if there is a point at which the industry would refuse to comply with the rate cuts.

“I don’t know how you could (resist),” Hughes said. “You just realign your business accordingly. What else can you do?”

Park Payne, president of Modern Engineering Inc., in Troy, said staffing companies that provide engineers and engineering services are agreeing to the price reductions partly because the auto industry needs them.

“I’m looking at this as a short-term problem. I don’t look at this as we are going to keep taking cuts,” Payne said. “This isn’t unjustified cost-cutting.”

Payne expects Modern Engineering’s sales to drop from $105.6 million in 2000 to about $90 million in 2001.

Cuts go deeper

For most staffing companies, a 7 percent fee cut adds up to more than a 10 percent operating loss because some costs related to contract staffing, such as employee benefits and taxes, remain fixed. As a result, the price reductions are slicing their profit margins by as much as two-thirds in an industry that already squeaks by with profit margins of about 3 percent.

Staffing companies are responding to the cuts by reducing expenses and are passing either some or all of the price reductions on to employees by reducing salaries and benefits.

TAC Automotive reduced employee salaries by “several percent,” absorbed the remaining portion of the price cuts and left benefits unchanged, Cowper said. He wouldn’t disclose the actual percentage cut.

MSX International Inc., in Auburn Hills, Mich., reduced by 7 percent the salaries of contract employees who work for Ford and Visteon. In November, it said it also is cutting 150 administrative positions as part of a program that should reduce expenses by $31 million next year.

Cushion runs out

Kelly Services Inc. in Troy, Mich., absorbed all of the costs without reducing salaries for employees working for GM until Dec. 28 and until Jan. 11 for employees working for Ford and Visteon, according to letters sent to employees.

But that commitment ended two weeks ago for GM employees when Kelly Services sent another letter saying a 7 percent wage reduction will go into effect on Dec. 31. There is no word yet for Ford and Visteon employees.

Few staffing companies have laid off employees, but that will change because some suppliers are cutting the number of contract employees they use by as much as 50 percent. Visteon plans to cut in half its contract work force of about 1,100 people. Lear is looking at smaller cuts of about 240 people.

You can reach Brent Snavely at bsnavely@crain.com

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