An executive at Ford Motor Co. in nearby Dearborn, Mich., says he needs a new desk. But he won't order one.
"I don't dare ask for a new one, because I know I'm not going to get it," says the veteran, middle-level Ford official, who asked not to be named.
"My assistant has been begging for a new typewriter for the past six months. But she hasn't gotten that, either," he adds.
At Chrysler Corp. headquarters here, company controller Christopher J. Steffen looked at a repair order for a 300-ton press at a Chrysler stamping plant in Twinsburg, Ohio.
"I know these repairs are needed because this order was scrubbed clean by people down the line before it ever got to me," Steffen says, indicating that he would approve the request. "Two years ago, a project like this might have come in even though the press could have run another 18 months without repairs. But we don't do business like that anymore."
Hard times have prompted aggressive cost-cutting in the nation's auto industry, particularly at Chrysler and Ford.
Chrysler, the nation's third-largest automaker, nearly skidded into bankruptcy in 1979. Ford, the second largest, lost a total of $2.6 billion in 1980 and 1981. But industry analysts are saying the two companies could make a profit this year, largely because of cost reductions.
"They have lowered their break-even lines to where they need a much lower volume of sales to cover costs," says David Healy, an analyst with Drexel Burnham Lambert, Inc., of New York. "They'll be able to get into the black much faster when there is an increase in sales."
As a result, stockbrokers who once shied away from automotive issues are giving a "buy" rating to Ford. General Motors Corp., the domestic auto industry leader, which also has been pinched, still turned a relatively modest $333 million profit last year and also has a "buy" rating. Chrysler still is listed as a "high risk" stock by most brokers; but few of them nowadays are betting that Chrysler will go out of business.
"Chrysler has survived. That's a true statement and a gratifying one," says Arvid Jouppi, a Detroit representative of Colin Hochstin Co. of New York. "Chrysler as a company is better than its stock."
Chrysler escaped bankruptcy with the help of $1.2 billion in federal loan guarantees, and by dropping some $2.2 billion in business expenses since 1980. Ford cut its annual costs by $2.5 billion between 1979 and 1981, and is planning to trim another $1 billion in 1982.
Chrysler has reduced its break-even line by 50 percent, meaning it now has to sell 1.2 million cars and trucks to cover costs in 1982, compared with 2.4 million unit sales needed two years ago.
Ford reduced its break-even line by about 25 percent, although the company's officials frown upon using that as a measurement of their success in cutting costs. Ford is a multinational, highly diversified corporation. Its Diversified Products Operation, which oversees the corporation's steel, electronics and aerospace interests--to name a few--has 46 major facilities on three continents.
"Chrysler can rattle off the break-even down to the the nearest unit . . . because it is a much simpler business," explains Ford controller Allan D. Gilmour. "But I don't know how to add together our various businesses and come up with a break-even."
Healy and other analysts look at Ford's domestic car and truck sales to come up with a figure. Using that method, Ford needed to move 3.7 million units in 1980 to cover costs in its U.S. automotive business, Healy says. Today, the company could sell 700,000 fewer units and break even, he adds.
Ford sold 2.4 million cars and trucks in the United States and Canada in 1981, compared with 2.5 million units in 1980. Chrysler sold 1.28 million cars and trucks in the United States, Canada and Mexico in 1981, compared with 1.31 million units in 1980.
Some of the cost reductions have been painful. Industry analysts and company officials say most of the savings were achieved through staff reductions.
"There is an old saying in this business that overhead walks in on two feet," one analyst observes. "So, you try to limit the number of feet coming through the door. That sounds cruel. But if you're going to cut costs, that's a way to do it."
Chrysler relied heavily on the feet-first approach, reducing its salaried staff from 44,000 to 22,000 employes between 1979 and 198l. Another 2,000 staff cuts were made through attrition during the same period, leaving the company with a white-collar work force of 20,000.
Ford sliced its North American salaried work force by 25 percent during the same period, knocking nearly 20,000 white-collar employes out of jobs. Remaining white-collar workers at Ford and Chrysler also took pay and benefit cuts.
Blue-collar workers, mostly represented by the United Auto Workers union, have given Chrysler $1.068 billion in wage and benefit concessions since 1979, and probably will be called upon to sacrifice more in contract negotiations this summer. Ford also won concessions from its unionized workers, who will sacrifice up to $1 billion in wages and benefits by Sept. 1984.
Both companies also have closed plants deemed losers.
That is the grisly stuff, the blood-on-the-carpets cuts that neither union nor company officials like to talk about. The positive savings, as Ford Chairman Philip Caldwell calls them, are another matter.
For example, Ford has been experimenting with an "employe involvement" program for a little more than two years, and both managers and workers say it is yielding increased quality and lower production costs.
Murray Reichenstein, who oversees spending in Ford's engineering division, says the E.I. program, as it is called, has helped bring about a 25 percent reduction in the number of engineering changes made after new-car designs have been approved for manufacture. The reductions began with the 1983-model cars and trucks.
"Once you release a design for manufacture, you set a whole lot of things into motion," Reichenstein explains. "You start making tools to produce the unit. Your suppliers start building and transporting parts. If you have to make a change, especially a late change, you have to scrap all or most of that," he says. Some of the money wasted in those changes is reflected in increased sticker prices on cars and trucks.
Reichenstein says the reduction in changes came about mostly because design engineers and draftsmen work closer together. "They are identifying potential problems earlier and meeting the design intent" of the vehicle "the first time around," he says. He notes it is difficult to "put an exact dollar amount" on how much is saved through fewer engineering changes. But other Ford officials say a design error, especially a serious flub that leads to recalls or extended warranty programs, can cost the company millions of dollars.
Both Ford and Chrysler have instituted cost-control programs to follow up on their crisis-oriented cost reduction efforts. Chrysler has appointed a nine-member committee to direct its program.
"When you go through the kinds of times we've gone through in this business--us, specifically, and the automotive business in general--at some point you have to cross over from straight cost reduction to cost control," observes Chrysler's Steffen. "It's a matter of holding down costs systematically and intelligently."
As a result, Chrysler's division heads and supervisors are doing line-by-line checks of their individual budgets and spending projects, Steffen says, adding that "nothing is sacred." Projects such as the repair of the 300-ton press in Twinsburg get close scrutiny before they are submitted to the committee, which screens the matter even further before it is submitted to Steffen.
"Hardly any politics is involved in the procedure. People just know, given the current environment, that they had better be damned sure that theirs is a worthy proposal," one Chrysler official asserts.
Chrysler and Ford have instituted their own consumer price indexes, which they use to track costs of raw materials and components going into their products. They have cut back on their inventories, freeing up cash by eliminating financial commitments for larger-than-necessary supply shipments. Both also have moved full force into robotics, and have increased their reliance on computers to streamline design and manufacturing techniques and administrative procedures.
Ford, for example, is planning to use computers to help reduce the workload of its worldwide financial staff by 25 percent by about 1985, Gilmour reports. "We've been one of the leaders in business in the overall computerization approach. But we can still get substantial increases in computerization in the clerical, administrative, analytical kinds of work," he says.
The automakers' efforts have attracted attention from others, such as officials in the troubled steel and airline industries. The efforts also have led to the inevitable question: Why weren't they taking these steps before?
"The automotive industry was a cash machine for many years," says Steffen, expressing a "totally personal opinion." He says "control systems that were used to run things in the past were based upon a cash-flow that few other industries have enjoyed. As a result, there was not the same attention paid to the kinds of details we are watching."
Adds Gilmour: "We were doing basic cost-cutting, but not to the extent that we're doing it now. . . . It's the old story about hangings. When the victim gets to the platform, he starts paying more attention to what's taking place." CAPTION: Chart, Cost Cuts Lower Break-Even Points, By Bethann Thornburg for The Washington Post; Picture 1, CHRISTOPHER J. STEFFEN . . . Chrysler carefully screens budgets; Picture 2, ALLAN D. GILMOUR . . . Ford plans to increase computerization; Picture 3, Blue-collar workers have given Chrysler $1.068 billion in concessions since 1979. Christian Science Monitor