Accuride Corp. and Cummins Inc. sent warnings to their shareholders — and the manufacturing sector at large — that falling demand in the commercial vehicle sector is leading to reductions in their operations. Truck and off-road vehicle production (including mining, construction, and agricultural vehicles) has remained robust throughout recent years, despite fluctuations in other manufacturing segments. That factor has supported broader theories about the long-term prospects for industrial activity, as investors see capital expenditures in commercial vehicles as a sign of underlying economic strength.
However, North American orders for heavy-duty (Class 8) trucks fell 35% in September. That development is the background to Accuride’s and Cummins’ downsizing actions.
Accuride, which manufactures wheels, wheel-end components and assemblies, truck body and chassis parts, and other commercial vehicle components, noted that continuing weakness in orders for Class 8 trucks has led to “rapidly declining build schedules” among its OEM customers.
More specifically, Accuride said it has been notified that Navistar and Paccar will no longer offer its Gunite hub and drum assemblies as standard equipment, though fleets may choose those products as options. In response, Accuride is accelerating the previously announce closure of its Gunite plant in Elkhart, Ind., and the consolidation of the Brillion Iron Works machining operations. Accuride will reduced its salaried workforce by 14%, and is taking other cost-reduction efforts.
Cummins Inc., a major designer and manufacturer of diesel and natural gas engines for commercial vehicles, reduced its 2012 revenue forecast by almost $1 billion and announced plans to respond to “the weakening global economy.”
“We continued to see weak economic data in a number of regions during the third quarter increasing the level of uncertainty regarding the direction of the global economy. As a result of the heightened uncertainty, end customers are delaying capital expenditures in a number of markets, lowering demand for our products,” stated chairman and CEO Tom Linebarger,
Linebarger noted that Cummins’ North American heavy-duty truck and international power generation markets have seen the most notable changes in outlook, but added that demand in most of China’s market segments is weakening. The company also lowered its revenues from the global mining industry.
Cummins indicated it is taking cost-cutting actions that include work-week reductions, closing some manufacturing operations, and targeted workforce reductions that will total 1,000 to 1,500 employees by year’s end.
“Responding quickly and strategically during these challenging economic times will pave the way for Cummins to emerge stronger as a company when markets inevitably rebound,” Linebarger stated. “Taking these actions now will allow us meet customer needs, maintain strong financial performance and allow us to capitalize on future growth opportunities.”
Cummins emphasized that its cost-saving strategy will not involve changes to its investments in “key growth programs.”
The commitment to long-term project was also underscored by Accuride president and CEO Rick Dauch. “In spite of the near-term industry challenges, our plan to ‘fix and grow’ Accuride is on track.
“We are taking the actions necessary to reduce our cost structure in the face of challenging and rapidly changing industry conditions, without jeopardizing our operational turnaround and long-term strategic objectives,” he continued. “Long-term industry fundamentals remain intact, pointing to a recovery over the next several years. We are confident that the actions we are taking will make Accuride a much stronger and more dependable company for our customers and shareholders.”