NASHVILLE, Tenn.—Calling the move "an inventory control issue" but also acknowledging a falloff in demand for Firestone-brand tires, the newly appointed CEO of Bridgestone/Firestone Inc. has made a round of layoffs his first major act.
BFS will lay off 450 workers at its plant in Decatur, Ill.—about 25 percent of the 1,900-1,950 employees there—for an indefinite period beginning Oct. 29 .
Also beginning Oct. 29, the tire maker will begin the first of two 14-day production curtailments at its facilities in LaVergne, Tenn., and Oklahoma City, most of which involve temporary plant shutdowns. The Decatur plant will be idled for two weeks in December.
"We are committed to rebuilding the Firestone organization and brand," John T. Lampe said at an Oct. 17 press conference at BFS headquarters in Nashville. "But in order to keep the promise I made, we must be financially strong and viable. This is a necessary but painful first step to ensure financial health and viability."
An inventory build-up made earlier this year in anticipation of a strike was a major reason for the layoffs, according to Mr. Lampe and a BFS press release. The strike was averted Sept. 21 when the company's union employees ratified an agreement negotiated between BFS and the United Steelworkers of America.
Though not giving an exact number, Mr. Lampe said Bridgestone/ Firestone's tire inventories were running about 50 percent ahead of normal.
But Mr. Lampe also noted a decrease in demand for Firestone tires, as well as "a shifting market trend" toward larger tires and away from the smaller, 15-inch tires that account for much of the production in Decatur, LaVergne and Oklahoma City.
It would be hasty to read doom and gloom into the BFS layoffs, said Saul Ludwig, managing director at McDonald & Co. Securities in Cleveland.
"I would take Firestone at their word on this," Mr. Ludwig said. "They talk about increased inventories, which is undoubtedly true; they talk about a slowing of demand for certain sizes of tires, which is undoubtedly true; and they also talk about a decrease in demand for Firestone-brand tires, which is to be expected during the recall. With all of the above, you'd better align your production accordingly."
The slowdown in demand for the Firestone brand "will last well past the completion of the recall," Mr. Ludwig said, but there are far too many variables to allow anyone to predict the eventual fate of the brand. "To try to guess in the long term—more than a year or so—would be improper," he said.
But David Meyer, associate professor of management at the University of Akron, sees these layoffs as the beginning of something far more ominous.
"I'm on record as saying the Firestone brand name is toast," Mr. Meyer said. "That company's in trouble, and that's not news.... I attended the congressional hearings (at which BFS executives testified), and those people aren't believable. I wouldn't trust them with my kid's piggy bank."
Production of the tires earmarked by BFS as replacements for the 6.5 million recalled Firestone ATX and Wilderness AT tires will not be affected by the production cutbacks, Mr. Lampe said. The vast majority of those tires, he said, are being produced at BFS plants in Aiken, S.C.; Wilson, N.C.; and Joliette, Quebec.
"Completing the recall is our highest priority," Mr. Lampe said, adding that the company already has replaced more than 4.2 million tires, using both its own production and that of competitors.
The current replacement rate is 80,000 tires a day, Mr. Lampe said, and he indicated he expects the recall to be completed "during the month of November."
When told by a reporter that some Firestone dealers were telling customers that they couldn't get replacement tires until the new year, Mr. Lampe said he wanted to know where those dealers were.
"We have a number of retail outlets that don't have a waiting list at all," he said. "We're trying to reallocate tires to places that still have waiting lists."
According to the schedule released by BFS, the LaVergne and Oklahoma City plants will go down for the first time Oct. 29-Nov. 11. LaVergne will produce about 7,000 tires per day during the period (just under 40 percent of its rated capacity), while Oklahoma City will be idle.
Oklahoma City will again be idle Dec. 10-Jan. 2, while LaVergne and Decatur will have a completely idle period Dec. 14-Jan. 2.
These cutbacks should reduce BFS' tire production by about 20 percent for the last two months of 2000, Mr. Lampe said. The company's normal production is about 170,000 tires per day, he added.
Decatur, LaVergne and Oklahoma City were chosen for production cutbacks because they were the plants with the biggest inventories, Mr. Lampe said. "Demand at the other plants remains very strong," he said.
In no way should the indefinite layoffs at Decatur be taken as a lack of faith in the plant by company management, Mr. Lampe said. "We stand behind the plant, its employees and its management," he said.
Decatur has been in the media spotlight since Aug. 9, when BFS specified 15-inch Wilderness AT tires from Decatur, and from no other BFS facility, in its recall and subsequent investigation. Some consumer groups and plaintiffs' attorneys accuse the company of singling out Decatur as a smokescreen, and contend the design of the Wilderness tire is inherently faulty.
Because of the recall, "we expect we will not be profitable this year," Mr. Lampe said. BFS' profits totaled $546 million in 1999. Bridgestone Corp., BFS' Tokyo-based parent firm, already has taken a $350 million charge against earnings in the first half of this year to cover the costs of the recall, and Bridgestone CEO Yoichiro Kaizaki has said he expects Bridgestone will have to take another $100 million charge in the second half.