AAM to Close Forge Shops, Cut Jobs

May 29, 2008
Moves follow contract ratification by UAW.

American Axle and Manufacturing Holdings Inc. will cut more than half of its U.S. hourly work force, or 2,000 jobs, through early retirement and buyout offers, plant closures and layoffs, according to a report by the Associated Press. The moves follow ratification of a new contract by the United Autoworkers union to conclude a strike that began on Feb 26.

In the AP report, chief financial officer Mike Simonte is quoted as saying the strike will cost American Axle $125 million to $130 million in lost profits and $370 million in sales this year. But, the company expects to save $300 million per year with lower labor costs from the new contract.

Most of the employment reductions will come by way buyout and early retirement offers, although there will be some involuntary layoffs, according to Simonte.

The company plans to close its forge operations in Detroit and Tonawanda, NY, and it will idle parts of two other plants in Detroit and Three Rivers, MI, Simonte said. The company plans to move some of the business from those plants to lower-cost subsidiaries in Michigan and Ohio, and to operations in Mexico.

As a result of the moves, the auto parts maker predicted its total hourly labor costs would drop from $73.48 before the new contract to between $30 and $45. The cost will vary by factory because they have different wage and benefit costs.

About 3,650 UAW workers at American Axle's five original facilities in New York and Michigan went on strike Feb. 26, but recently ratified a contract with deep concessions; 78% of the votes were cast in favor of the new contract. The company also has about 850 workers at three U.S. subsidiaries.

The new contract, which expires February 25, 2012, makes American Axle's labor costs competitive with other U.S. auto parts suppliers, the company said. Production workers in Detroit, for example, will see their pay cut from around $28 to $18.50/hour. The deal also caps pay for laid-off workers at $18 million, after which they will get only state unemployment benefits, Simonte said. American Axle expects to deplete the $18 million in the first quarter of next year.

But, the contract includes $90,000-$95,000 per worker "buydowns" over three years to ease the transition to lower pay. Workers may choose between a $55,000 early retirement incentive, or up to $140,000 to leave the company. American Axle expects the buydowns, buyouts, and early-retirement packages to cost $400 million to $450 million.

American Axle said it has a $1.4-billion new business backlog from 2009 through 2013. The company gets about 80% of its business from General Motors Corp., but it also has been lining up business with other auto manufacturers, including Nissan, Renault, Audi, Brilliance Automotive China, and Chery Automobile Co.