Cummins has maintained a strong growth for five consecutive years and has just achieved the highest historical sales. However, in just three months, it has twice cut its staff worldwide.
Tim Solso, Cummins chairman and chief executive, said in his 2008 financial results: "This is the painful choice Cummins Inc. ("Cummins") has to make."
On March 1, Cummins completed its second layoff on a global scale. This time, the starting point is 800 people.
When the giants of the Detroit Motor City got deeper and deeper in the quagmire of losses, the fate of Cummins also became confusing. Today, in Washington, where storms have just passed, GM and Ford lobbying teams are busy working on Capitol Hill, looking forward to the US government can once again help to save the auto market. Cummings are in the same mood as they are.
“Its performance is closely linked to the auto market performance,†Brian Rayle, manufacturing analyst at FTN Midwest Securities Analysts, told the reporter on the 24th. “The basics of Cummins are good. However, due to the downturn in the auto market, Cummins cannot do anything about it. This is a typical example of the 'Oyster and fish'. When Cummins renewed its strong growth, it depends on when the auto market will pick up."
Cummins is the world's largest independent engine manufacturer. Its products include diesel and alternative fuel engines, key engine subsystems, power generation systems, and engine-related components.
Layoffs 10%
When news of losses in Detroit Motor City came one after another, Cummins raised his knife again.
This is Cummins’ second round of layoffs in three months. On December 5, 2008, Cummins announced that it will cut at least 500 professional positions globally.
Rayle said that before December last year, the industry had already guessed that Cummins would join the layoffs. In fact, layoffs are the most effective way to cut costs.
"When Cummins's customers are downsizing, there are not many options before it," he said. "Moreover, this year will be a very difficult year for Cummins. It does not rule out the next round of layoffs."
In fact, not only Cummins and its customers are downsizing, its opponents are also reducing the number of employees. Shortly after Cummins’ first layoff, its old rival Caterpillar announced a global white-collar reduction of 50%, involving 20,000 people, and, a month later, continued to lay off 2,110 additional layoffs. The chill in the global auto market has completely plunged into the bones of engine manufacturers.
In response to a series of layoffs in a short period of time, Su Zhiqiang stated in the 2008 annual results announcement that layoffs are a very regrettable and painful decision, but it is also necessary. Only in this way can Cummins remain competitive in the global economic recession and prepare for the economic recovery.
Cummins said that in order to reduce the impact of this layoff on employees as much as possible, it will provide voluntary retirement plans to some professional positions in the United States.
At the same time, employees who have not been involved in layoffs can completely eliminate the idea of ​​salary increase. This year, Cummins will freeze the salary adjustment plan of the vast majority of white-collar workers, freeze all recruitment, and executives above the vice president will also be reduced by 10%.
In this way, Cummins’ current layoff plan involves a total of 1400 white-collar workers, which accounts for about 10% of the total number of white-collar employees. In addition, Cummins has also cut 600 hours jobs, 2,500 temporary jobs, including the United Kingdom and Mexico.
In the Chinese market, John Watkins, president of Cummins East Asia, said in a telephone interview with the reporter on February 25th that there were very few layoffs because of the economic crisis. China is the least affected in the layoffs plan. Area.
In addition to layoffs, in order to reduce global manufacturing and logistics costs, Cummins has also initiated other measures aimed at increasing revenue and reducing expenditures, including: temporarily shutting down a batch of factories or shortening start-up time; reducing various unnecessary expenses; reducing IT spending; Reduce the scale of investment, focus on ensuring the input of key product platforms.
For example, Hua Jinsheng said that Cummins will update more than 40,000 laptops and desktop workstations every three years around the world. According to the plan, this update was originally in 2009, but considering the current economic situation, the company decided to postpone until 2010.
Fourth quarter profit cut 78%
The fourth quarter of 2008 is an inflection point in Cummins’ performance on a straight line. The Cummins performance fell sharply during the quarter and it had to retreat from "every day upwards" to cost control.
The financial report shows that in the fourth quarter, Cummins’ profits decreased by 78% year-on-year. Among them, due to the shrinking demand in the truck market, sales of the Cummins Engine Division decreased by 10%, and the income of parts and components also fell.
Although Cummins’ sales and profits for the full year of 2008 continued to hit record highs for five consecutive years, they increased by 10% and 2% respectively year-on-year to US$14.342 billion and US$7.55 billion.
Cummins said that 2009 will be a very difficult year for all business units and it is expected that this year's sales will be reduced by 20% on the basis of 2008.
In the opinion of analysts, such results are both unexpected and reasonable. Longbow Research manufacturing analyst Eli Lustgarten said in an email replying to reporters that from all perspectives, Cummins’ own state is very healthy, and the sharp decline in the fourth quarter is indeed unacceptable at first glance. However, taking a step back and looking at the entire global auto market, especially the American auto market, will find Cummins's situation is not difficult to understand.
The reporter learned from Cummins that the current debt ratio of the company is low, less than 15%, cash reserves are adequate, and it also has a revolving credit line of 1.1 billion U.S. dollars.
However, the global auto market, especially the American auto market, continues to linger in the trough. From Japan to Europe, from Europe to the United States, the entire automotive industry is performing almost every day with layoffs, pay cuts, and factory closures. Lustgarten believes that Cummins will be caught in the current predicament, in large part because of the drag on the Detroit Motor City.
At the end of last year, Cummins’ heavy-duty and medium-card markets were severely affected due to the sharp decline in demand in the North American and European markets. In addition, the truck market in China, Brazil and India also began to show signs of fatigue. Cummins said in forecasting its 2009 performance that the market environment will not be significantly improved in a short period of time.
"The financial results in the fourth quarter are not good, and this year's results may be even more ugly. However, given Cummins' leading edge in emissions standards, as long as this crisis survives, Cummins should be able to quickly return to the growth express train. On the road," Lustgarten said.
He believes that in today's increasingly stringent national standards for the management of emission standards, Cummins, who claims to possess the cleanest heavy-duty diesel engine technology, can still rely on technology as a killer to maintain its market position, as it did in the 1990s.
On January 13, Cummins announced that its range of products has met the requirements of the EPA 2010 emission standards that will be implemented in the North American market in 2010. Lustgarten said that in an unstable market, this is equal to giving Cummins a certain amount of assurance. He said that in the early 1990s, Cummins was aware of the importance of emission standards in the market, and invested a lot of money in technology upgrade before they could be revived. I believe this time the preemption of emission standards will also help. .
Since the 1990s, Cummins' investment in research and development has been increasing year by year, which has reversed the trend of heavy truck engine market and its market share has increased significantly.
In the North American market alone, the market share of Cummins heavy-duty diesel engines has topped the list for two consecutive years, reaching 38% in 2007 and continuing to climb to 45% in 2008. Moreover, Cummins’ traditional rival Caterpillar has announced that it will formally withdraw from the North American heavy and medium truck diesel engine market after 2010.
However, Lustgarten also pointed out that the research and development of new technologies require a lot of financial support. Under the economic crisis, Cummins needs to maintain its investment in R&D is a big challenge.
According to Cummins' 2008 financial report, last year, Cummins’ technology R&D investment increased by 28% year-on-year to US$422 million.
Regional diversity
In the face of the cold winter in the American automobile market, Cummins has taken a more important position in its geographical diversification strategy. Although Cummins decided to reduce the scale of investment for cost control, Hua Jinsheng stated that Cummins' investment strategy in emerging markets including China will not be shaken.
He said that this recession is indeed very serious, but Cummins has a wealth of experience in dealing with the crisis. The Asian financial turmoil in 1997 and the September 11 attacks in 2001 caused turmoil in the external environment, and Cummins spent all of the time. "Cummins' new investment in China is already in progress," he said. "Most of the new investment plans have already been implemented in the three years from 2006 to 2008. The rest will also be opened this year as originally planned."
Since 2005, Cummins has continuously expanded its international business. In markets such as Canada, Africa and the Middle East, Mexico and Latin America, Asia and Australia, Cummins's business is on the rise.
The reporter learned from Cummins that the proportion of sales in the overseas markets outside the United States increased further in 2008, from 54% in 2007 to 59%, among which, Asia accounted for more than one-fifth of global business. Effectively resisted the negative impact of weak markets in Europe and the United States.
Take the Chinese market as an example. Last year, Cummins’ total sales of Chinese imports and joint ventures reached US$2.3 billion, a year-on-year increase of 33%. Moreover, based on the total sales including joint ventures, the proportion of Chinese operations in Cummins global business also increased from 9% in 2007 to 11% in 2008. Before the economic crisis broke out, Cummins predicted that by 2010, the total sales in China and India will reach 5 billion U.S. dollars.
Su Zhiqiang told the United States media when he talked about Cummins's international strategy, said that Cummins is now the highest level of geographical diversity, in many markets, Cummins's market share has entered a mature stage, and performed well, which allows Cummins has sufficient capabilities to seize new opportunities in these markets.
Hua Jinsheng told reporters that in the Chinese market, Cummins has begun to pay attention to new growth opportunities and the specific targets are inconvenient for publication. However, he disclosed that Cummins is very interested in the new opportunities generated by China’s 4 trillion yuan economic stimulus plan. China’s investment in infrastructure construction such as railways and airports is expected to bring business opportunities to Cummins’s generating unit business.
"Cummins did play a good global card, but this card is not played in a thorough way," Lustgarten said. He said that undeniably, from the current situation, the growth of overseas markets has effectively helped Cummins to cushion the pressure on the US market. However, the current overseas market and the U.S. market are not safe enough. The proportion of business in the US market is 41%. This is not a small amount. Moreover, in the next year or two, the US market will continue to drag on its overall performance.
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