Toyota Takes the Knife to U.S. Labor Costs

With sales in the doldrums, Toyota is offering buyouts to 18,000 U.S. workers, reducing wages, and slashing bonuses. But no layoffs so far

By Ian Rowley

TORU YAMANAKA/AFP/Getty Images

Last summer, when Toyota (TM) temporarily shuttered three U.S. plants as part of a move to build more fuel-efficient vehicles and fewer large trucks, it won plaudits for not laying off employees. Instead, workers undertook extra training sessions, helped out at other plants, or even became involved in projects in the local community. Now, though, with the U.S. market showing few signs of recovery—Toyota's sales slumped 32% in January—and losses mounting, the Japanese automaker has no choice but to cut labor costs in the U.S. While no layoffs are planned, Toyota is offering buyouts to some of its 30,000 American employees, slashing bonuses, and cutting executive pay.

According to a statement issued late on Feb. 12, Toyota will offer voluntary exit programs and work-sharing schemes at selected plants. Worker bonuses will be reduced and there will be no wage increases "for the foreseeable future." Executives will have their pay cut and see their bonuses disappear. There will be additional nonproduction days in April, too. "We've taken responsible, step-by-step actions to address this issue in recent months, and we hope the new measures will help us adjust while protecting jobs," Jim Wiseman, vice-president for external affairs at Toyota Motor Engineering & Manufacturing North America, said in the statement.

Toyota says it is unsure how many workers will take up the offer of the buyouts and that it doesn't have a target in mind. Workers that sign up for the voluntary plan will get 10 weeks' salary, plus two weeks' salary for every year worked, and $20,000. The offer will be made to 18,000 U.S. Toyota workers, but unionized plants, such as New United Motor Manufacturing, a joint venture with GM (GM) in California, will not be affected.

Reduced Hours

Under the "work-sharing" scheme, affected workers will now work and be paid for 72 hours, rather than the usual 80, over a two-week period. A Toyota spokesman said the reduced hours will be in force for an unspecified period of time. He added that discussions were under way or planned to extend the work-sharing scheme to unionized workers, depending on the union involved.

While unwelcome, the moves are not unexpected. On Feb. 6, Toyota said it will lose $3.9 billion for the year through March, marking its first net loss since 1950.

Executive Vice-President Mitsuo Kinoshita told reporters that the poor results were largely due to the strong Japanese yen and plunging sales in the U.S.—traditionally where Toyota earns its biggest chunk of profits—and Europe. Kinoshita added that it was necessary to slash production to prevent a stockpile of unsold cars, but he said the company will try to avoid firing permanent staff. "We intend to make every possible effort to protect employees," he said.

In Japan, Toyota has already laid off temporary employees and is closing factories for an additional 11 days this month and next to cut production. On two of those days, workers are receiving 80% of their normal pay. Other days are taken from paid holiday allowances. Last fall the company formed an "Emergency Profit Improvement Committee," which it hopes will ferret out an extra $1.4 billion in savings this year—in addition to the $3.3 billion in new savings Toyota looks to make in normal years.