Downshifting from its aggressive growth strategy, Lear Corp. plans to lay off about 2,800 employees, many of them in its plastic interior systems group, and close 18 plants worldwide.
Those actions, expected to be completed by the year 2000, will help the Southfield, Mich.-based automotive supplier save about $40 million in costs annually, the company said in a Dec. 7 statement.
Most of the planned cutbacks will take place in Europe, where 15 of the 18 targeted plants are located. Two of the planned closings are in North America and one is in South America, the company said.
About 1,700 of the layoffs also will occur in Europe, the statement said. The company is cutting about 4 percent of its work force worldwide.
The publicly traded company disclosed few other details of its cost-cutting plan or the underlying reasons behind it. Lear Chairman and Chief Executive Officer Kenneth Way said in a statement that the restructuring measure will lower the company's cost structure and improve its long-term competitive position.
Heat from Wall Street might have contributed to the restructuring. Way said the company needs to get back on track to achieve 15 percent earnings-per-share growth annually. With the announcement, Lear expects to record about $3.60 in earnings per share next year, up from about $3.03 a share expected for 1998, several analysts said.
Lear spokeswoman Karen Stewart said she could not comment beyond the news release, but that more information will be available later. Several analysts expect those details to be released when Lear announces its fourth-quarter 1998 earnings in January.
The company is one of North America's largest injection molders. Lear, which recorded $7.3 billion in 1997 sales worldwide, ranked second in Plastics News' survey, with $680 million in North American injection molding sales in 1997.
An in-house employee purge has begun at Lear's administrative offices in metropolitan Detroit. Several outside suppliers that work with Lear said as many as 600 white-collar employees have received pink slips.
That figure could have been a bit inflated as the news spread in Detroit. Several laid-off Lear employees confirmed that more than 50 sales and engineering officials from the supplier's interior systems group — which makes plastic door trim, consoles and other interior body parts — were let go within the past two weeks. The laid-off workers include several at director-level positions, the source said.
An injection molding plant in Midland, Texas, that makes interior parts also is on the list for closure due to declining sales, Stewart confirmed. The 75,000-square-foot plant was part of Lear's 1995 purchase of Automotive Industries Holding Inc. of Rochester Hills, Mich. The plant has 195 employees and will close by the end of July, Stewart said.
The news surprised some equity analysts, who had expected some paring by Lear, but not to that degree. Lear had told analysts in October that it would take a $125 million pretax charge on its fourth-quarter results.
Last week, Lear hiked that figure to a $133 million writedown, or about $1.37 a share. About $85 million of the writedown is in cash, the company said.
Adding North American operations to the planned cutbacks might have caused that figure to rise, said analyst Edgar Faler of Detroit-based Olde Discount Corp.
``That's the real news, and I suspect they're still working out the details,'' Faler said. ``Obviously, Lear is taking a more-dire look at things. It's a change in thinking, but this could turn out to be a proactive step for the company.''
Lear also needs to shore up its European operations, said analyst Gregory Kagay of McDonald & Co. Investments in Birmingham, Mich. Earnings on that continent are less than the firm has expected, and profit margins are thin.
``It's somewhat fragmented across Europe,'' Kagay said. ``Lear would like to operate lower-cost, more-efficient plants. These actions [to consolidate plants] could have a payoff in the year 2000.''
The wildest rumor among suppliers and competitors is that Lear is pruning operations to make the company a better candidate for a takeover. Since November, outside suppliers have speculated that Dearborn, Mich.-based Visteon Automotive Systems, a unit of Ford Motor Co., is interested in buying Lear.
Ford incoming President and Chief Executive Officer Jac Nasser visited Lear headquarters in November, according to several current and former Lear employees. That might have sparked the rumors.
Several analysts termed buyout talks with Ford speculation.