CLEVELAND -- TRW Inc., the largest U.S. maker of automobile air bags, said yesterday that it will fire 7,500 auto-parts workers, 9.4 percent of its payroll, and shut as many as 21 factories amid pressure to lower prices to car companies.
The Cleveland-based company will take $125 million to $150 million in pretax charges in the next 18 months to pay for the moves, including $25 million this year. About two-thirds of its employees worldwide, 54,000 of 80,000, make auto parts.
The moves make good on the company's pledge in April to squeeze more profit from the business as automakers demand lower prices for air bags, seat belts, power steering units and other parts.
Operating profit in TRW's auto-parts business fell 15 percent to $295 million in the first six months of the year on little-changed sales of $3.69 billion.
"They finally woke up," said Eli Lustgarten, a Schroder & Co. analyst. "This is aggressive action to enhance the operating margin."
TRW shares rose 37.5 cents to close at $54.875 yesterday.
The job cuts include "across-the-board, blue- and white-collar administrative and production employees," spokesman Jay McCaffrey said.
All 137 automotive factories in 24 countries are "under scrutiny," McCaffrey said, adding that he couldn't specify when the plant closings will be announced.
TRW, which is also a space, defense and information-technology contractor, is seeking to improve operating-profit margins over two years to create $100 million in added cash flow annually. It plans to slice $75 million, or 20 percent, of administrative costs and cut its number of suppliers in half to leverage its purchasing power.
"We're going to be very aggressive about additional cost-cutting to achieve the top level of earnings in the auto industry," Chairman and Chief Executive Officer Joseph Gorman said.
He called the cutbacks a reaction to "rather severe price pressures that the key automakers are placing on all suppliers."
Air bag prices, for example, have fallen about 7 percent this year throughout the industry, said Jackson Blackstock, an analyst with Donaldson Lufkin & Jenrette.
Even so, "this is not just air bags; it's all over their automotive business," Blackstock said.
Auto-parts sales fell 3.7 percent in the second quarter to $1.81 billion, largely because of lower prices, United Auto Workers strikes at two General Motors Corp. plants and a strong U.S. dollar.
A stronger dollar makes foreign profits shrink when they are translated into U.S. currency.
In the first six months of 1998, the unit's operating margin declined to 8 percent from 9.5 percent in the year-earlier period, while the margin in the space, defense and information businesses rose to 9.1 percent from 8.6 percent.
TRW said it wants to lower manufacturing costs by 25 percent over the next few years. Part of the reason for the excess capacity now, McCaffrey said, is that earlier efforts have improved productivity.
Automakers and their suppliers are trying to cut costs because low inflation and competition aided by the weak dollar make it hard to raise prices on cars and other products.
TRW and rivals such as Breed Technologies Inc. and Tenneco Inc. are being asked to give manufacturers of original equipment more complete parts systems, or modules, rather than piecemeal components.
"We're trying to add more value by simplifying the OEM's task," said Barbara Posner, a spokeswoman for Tenneco in Greenwich, Conn. Such pressures are "very much a constant in this industry," she said.
The TRW unit's major customers include GM, Ford Motor Co., Volkswagen AG and Chrysler Corp. Ford accounted for 21 percent of automotive sales in 1997.
Unlike GM, which settled with the United Auto Workers this week to end strikes over productivity and job cuts, TRW will have a relatively easy time making the changes it needs, even though many of its workers also are UAW members.
"We have wholesale agreements with GM that protect jobs," said Reg McGhee, a spokesman for the UAW. "The kinds of protections that we built into the contracts of the Big Three don't exist" at many of the independent parts companies.
Pub Date: 7/30/98