Firms Hit Bumps In `Soft Landing'
THE cost cutters are in the corporate kitchen, armed with cleavers. Head count is coming down.
Old plants are on their way to the scrap heap.
Everyone shares newspapers, recycles paper clips and does without air conditioning.
As the economy cools, the latest corporate recipe is for less of everything.
Only last week, Eastman Kodak Company stunned Rochester, N.Y., by announcing it was axing 4,500 jobs worldwide to raise $1 billion in cash in 1990. The same day, Campbell Soup Company, based in Camden, N.J., laid the cleaver to 2,800 jobs and manufacturing facilities in three states to save $150 million over the next four years. Proving it is not sentimental, Campbell closed its Camden plant, opened in 1869, the company's first year.
``No one said the soft landing in the economy would be painless,'' says Gordon Richards, an economist with the National Association of Manufacturers in Washington, D.C. ``When the economy slows, we see layoffs in cyclical companies.''
It is not only the economy that is squeezing companies. Mr. Richards notes the value of the dollar is back up relative to foreign currencies, making it harder to compete abroad. ``We're in a less favorable trade position,'' he says. Campbell Soup's cutbacks, for example, partly reflect increased competition from ``ramen,'' Japanese-made soups.
In addition, mergers and leveraged buyouts have saddled companies with huge debt payments. After Carl Icahn paid $500 million to buy Trans World Airlines (TWA), the flight attendants saw their pay pared by 44 percent. The pilots, machinists, and management also took large pay cuts. At the same time, Mr. Icahn provided the company with fresh funds, preventing it from going into bankruptcy.
Even the threat of a merger is enough to make corporate honchos shed expenses. Polaroid Corporation, based in Cambridge, Mass., fought an expensive takeover battle with Shamrock Holdings. After the smoke cleared, Polaroid was financially wounded. Its solution: reduce its work force by 18 percent; cut workers' pay by 5 percent in exchange for Polaroid stock; and reduce all budgets by 10 percent. ``We took it between the eyes,'' says Harry Johnson, manager of corporate relations.
And, of course, there is old-fashioned competition. If one company trims the fat, everyone else who competes against the company pulls out knives.
This is happening in the automobile industry. Two years ago, General Motors Corporation announced its ``action plan'' to lower its costs by $10 billion by 1990. It lopped off 40,000 salaried employees - 25 percent of its white-collar work force. It looked at every office expense from word processors to copying machines. GM divested itself of scores of subsidiaries. And it worked on new ways to design, build, and sell automobiles.
GM, says Terrence Sullivan, manager for sales and financial reporting, now intends to slim down by $12 billion to $13 billion.
Chrysler Corporation is following with its own cost-cutting. ``We're looking at everything from magazine subscriptions to zero-based budgeting,'' says Joanne Henrick, a spokeswoman. Recently, Chrysler announced its goal was to reduce its white-collar work force by 2,300 employees.
Chrysler chairman Lee Iacocca has even devised a unique incentive program for the top 2,000 managers to cut costs. They can contribute up to 10 percent of their salary to an escrow account. If the company meets the goal of reducing costs by $1 billion by the end of 1990, the managers will double their money. However, if it cuts only $750 million, they get their money back with no interest. And if they save the company only $500 million, they forfeit the funds to Chrysler.
``There is a new mind-set. This is not just cutting out the fat. This is a permanent fast,'' Ms. Henrick says.
Some companies are taking on the lean and hungry look out of necessity. Losing $600,000 per month, Syntro Corporation, a small biotechnology company, suddenly found itself short of capital after the stock market crash of October 1987. So the company decided to limit its research efforts to one or two business opportunities.
Syntro chopped its research staff in La Jolla, Calif., from 60 scientists to 19. At the same time, it moved the corporate headquarters from the seaside town to Lenexa, Kan., which is much closer to the potential users of its chief product - an animal vaccine.
``We did all the things to make a buck go further,'' says Stephen O'Neil, chairman of the company. Now, Mr. O'Neil says, the ``burn rate'' is down to $200,000 a month.
Red ink - $424 million in fiscal year 1988 - is also causing Wang Laboratories, Inc. to reorganize. In the past year, Wang, based in Lowell, Mass., has sliced $200 million in day-to-day expenses. It has given pink slips to 3,200 employees and more will leave next year. At the same time, the company is streamlining its operations. ``One report or one internal document will substitute the three different types of reports or internal documents which were written before,'' says Paul Henning, director of investor relations.
Psychological effects accompany the squeezing. Karen Lantz, a vice president at the Independent Federation of Flight Attendents, describes life since Icahn's takeover at TWA as ``turmoil.''
However, O'Neil says employees respect managers who make tough decisions. Mr. Henning at Wang says most employees ``understand you need to be breathing to grow again.''