Alcoa Inc., in a far-ranging strategy, will reduce its total global workforce by 13%, cut primary aluminum output by 18% of capacity, and sell off a series of product lines, all in the effort to “conserve cash, reduce costs and strengthen the company’s competitiveness during the current economic downturn.”
The aluminum industry is being especially hard hit by the global economic downturn, because of high energy, commodity, production, and distribution costs, and plummeting consumer demand. Alcoa outlined an earlier cost-saving program as recently as October.
Alcoa’s “headcount” reduction totals 13,500 salaried and hourly workers and will be supplemented by the elimination of 1,700 contractor positions. Alcoa also implemented a freeze on salaries and new hires.
Alcoa’s cast automotive wheels plant in Beloit, WI, was reported closing late last month, and now it’s revealed the company plans to sell the entire business unit. Alcoa will continue to produce forged wheels, though that unit will be included in the workforce reduction.
“These are extraordinary times, requiring speed and decisiveness to address the current economic downturn, and flexibility and foresight to be prepared for future uncertainties in our markets,” stated Alcoa president and CEO Klaus Kleinfeld. “We are taking a wide-ranging set of aggressive, but prudent, measures to ensure that Alcoa maintains its competitive lead in today’s challenging markets while also emerging even stronger when the economy recovers.”
As consumer demand for dwindled for semi-finished and consumer products over the course of 2008, and revenue declined, Alcoa has been in cost-cutting mode for several months. It has sold some assets, closed one smelter, and scaled back others.
In the latest plan, Alcoa will further reduce smelter output by more than 135,000 metric tons/year, bringing idled capacity to more than 750,000 metric tons per year, or 18% of annualized output. Alumina production will be reduced accordingly to a total of 1.5 million metric tons per year. Both the aluminum and alumina capacity cuts will be fully implemented by the end of Q1 2009.
In addition, Alcoa plans to divest four businesses it characterizes as “non-core.” These are the Electrical and Electronic Systems Global Foil, Cast Auto Wheels, and Transportation Products Europe. These units had combined 2008 revenues of $1.8 billion, and an estimated after-tax operating loss of approximately $105 million, according to Alcoa. Their employment total is 22,600, which is not included in the “headcount reduction.” Alcoa anticipates net proceeds from the divestitures will be about $100 million.
Alcoa will restructure its North American and European Mill Products, reducing employment total by approximately 900.