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Lear to shed 7,700 jobs in more than 20 facilities
Loss of Big 3 business pushes auto interiors supplier to make cuts, move some work abroad.
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Auto interiors giant Lear Corp. on Monday outlined a global restructuring plan to eliminate up to 7,700 jobs in more than 20 facilities, and move some work overseas over the next two years and help the supplier improve its competitive position amid brutal industry conditions.
The Southfield-based supplier of seating systems, trim and wire harnesses said an initial phase of the plan will target five plants in North America and Europe as well as administrative functions.
Lear, a $17 billion-a-year company that had been highly profitable in recent years, did not specify how its 18 plants and 9,500 workers in Michigan could be affected. The company will provide more details when it releases second-quarter financial results next month.
The company's downsizing is the latest example of how the U.S. supplier industry is struggling in the face of declining production and sales by Detroit automakers, rising commodity costs and foreign pricing pressures.
It also shows that even the mightiest players are being forced to take hard steps to avoid being pulled down by the undertow.
"We are implementing this restructuring plan to improve our overall competitive position in light of extremely challenging industry conditions," said Bob Rossiter, chairman and CEO of Lear, in a statement.
"While the actions we are taking are difficult, these steps are consistent with our strategy to deliver superior long-term value to our customers and shareholders," Rossiter added.
Lear expects to incur $250 million in pre-tax costs for the restructuring, with about $30 million expected to show up in the second quarter and a "substantial portion" coming in the second half of 2005.
The charges, along with the supplier's move to suspend financial guidance for 2005 until it reports second-quarter earnings in July, sent Lear shares down about 2 percent to $35.62 in trading Monday.
They also spurred Wall Street ratings firm Standard & Poor's to place Lear on a watch list for a possible credit ratings downgrade, which could make it more expensive for the firm to borrow money.
The firm "was already concerned about the company's weakened financial performance due to lower production levels by its two largest customers, Ford Motor Co. and General Motors Corp." said Daniel R. DiSenso, a Standard & Poor's credit analyst.
Lear's warning that further production cuts may be on the way only fueled more doubt about its ability to turn things around in the near term.
"Clearly, the tone of the company's comments, and the general domestic auto industry environment suggests further downward pressure on operating earnings and cash flow," said Merrill Lynch analyst John Casesa in a note to investors.
More than 60 percent of Lear's business comes from Ford, GM and DaimlerChrysler AG's Chrysler Group. The heavy reliance on Big Three business has become an Achilles heel for Lear and many other U.S. parts makers as Ford and GM sales have fallen in recent months.
"Lear's got to do some restructuring right now to make sure that they don't let the costs get ahead of them," said Jim Gillette, a supplier industry analyst at CSM Worldwide in Grand Rapids. "The real key is to capture a lot of business outside the Big Three."
In April, Lear posted first-quarter profits that were about 83 percent lower than the previous year and said an aggressive cost-cutting initiative would be needed to improve profitability.
Lear said the restructuring is chiefly aimed at reducing excess manufacturing capacity, lowering operating costs and streamlining the company's organization.
David Wajsgras, Lear's chief financial officer, said the restructuring will be implemented over the next 18 to 24 months.
The action will mean the reduction of between 5 percent and 7 percent of Lear's 110,000-strong global work force.
Blue-collar jobs will be eliminated where there is excess manufacturing capacity or labor costs are uncompetitive.
Salaried jobs will be slashed as part of an effort to reduce the scope and size of international offices and to trim overhead costs companywide, including at the company's Southfield headquarters, said Lear spokesman Mel Stephens.
About two-thirds of the cuts will affect facilities in North America, while the balance will mainly target operations in Europe, Wajsgras said.
Cuts will focus on two areas: Lear's components unit, which builds everything from door panels and carpeting to floor consoles and headliners, and its electrical distribution businesses, which makes wire harnesses, he said.
Some plants in Michigan are likely under scrutiny, including an electrical systems factory in Taylor and an interior components plant in Port Huron.
About half of the $250 million in restructuring costs is related to Lear's effort to accelerate a move into lower-cost areas such as Thailand, India, Eastern Europe and China, where building simple, mass-produced parts creates a savings for many auto suppliers.
"It's really about realigning our business longer-term to remain cost competitive and to better align our operations with those of our customers," said Wajsgras, dismissing the idea that the restructuring comes solely in response to industry headwinds.
"We at Lear do not see this as the perfect storm. We see this as the new reality."
The United Auto Workers union, which represents U.S. hourly workers at Lear, declined to comment Monday.
You can reach Brett Clanton at (313) 222-2612 or bclanton@detnews.com.
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