International Harvester Co., facing a $1 billion loss this year, yesterday announced a radical survival plan that would lead to the dismissal or transfer of nearly 8,000 employes and drastically reduce the size of the company.
The plan would cut the number of Harvester's manufacturing plants by more than one-third and focus the company's remaining resources on farm equipment and trucks--businesses that offer the best chance of pulling it from the brink of bankruptcy.
Harvester is to present the plan today to its bankers, who last year shepherded the company through a $4.2 billion debt reorganization. They will be asked once again to make concessions, including accepting company stock in place of debt and interest payments.
The company last week held a corporate pep rally to launch a new recovery campaign built around the theme, "We're not giving in, we're going on." But the plan announced yesterday in Chicago would reduce Harvester to a shadow of its former self.
Eight of Harvester's 23 North American plants had already been marked for closing or sale, and if the restructuring goes through as proposed, the company could be left with only eight. At least three of the company's 16 overseas plants also would be sold, according to the plan, which is to be completed by October, 1983.
"The intent of the plan is to create a viable core business with continuing operations that will return the company to profitability in 1984," Louis W. Menk, the company's chairman, said in a statement.
Harvester predicted yesterday that its loss in the fiscal year ending Oct. 31 would approach $1 billion, one of the biggest annual losses in U.S. corporate history. In the past two years, Harvester, wracked by depressed markets, high interest rates and the effects of a six-month strike two years ago, has lost more than $1 billion, including $635.7 million last year. The company forecast sales for this year of $5.3 billion, down from $7 billion in fiscal 1981 and a peak of $8 billion in 1979.
The company said it would need approval by all 193 of its lenders for the restructuring plan, which would give the lenders stock in exchange for $400 million in debt and replace cash interest payments on Harvester's loans with payments in stock.
Harvester said it is discussing with several companies the sale of its construction equipment business, which has been one of its biggest money-losers. Analysts have said IH would have to either sell or close down this division to survive, but one competitor, Caterpillar Tractor Co. chairman Lee L. Morgan, said in a recent interview he doubted that Harvester could find a buyer for the division. The construction equipment industry is suffering through one of its worst slumps.
Analysts said Harvester would likely be put in the position of having to conduct a "fire sale" of the operations, taking low prices just to get rid of them. "At some price, anything can be done, anything's possible," said Eli Lustgarten, an industry analyst with the Paine Webber brokerage firm.
Harvester proposed yesterday to close or sell all or part of six manufacturing plants, in addition to the eight already for sale or marked for closing. And IH said it was considering closing another factory. Two other North American plants would be disposed of if the construction equipment division was sold or closed.
The announced closings would affect as many as 8,000 workers in the United States and Canada. Harvester currently has 10,000 employes on indefinite layoff out of a total of 30,000 hourly workers. Most of those employes are represented by the United Auto Workers union, which earlier this year granted wage and benefit concessions to Harvester, receiving the company's promise of notice and outplacement services in the event of plant closings. The UAW said it was "disappointed" by Harvester's announcement.
The plants to be closed include a factory in Memphis that makes agricultural equipment and employs 675 workers, and a factory in Louisville that makes transmissions and other parts and employs 1,000. A foundry in Louisville would remain open. IH also said it would close a 600-worker foundry in Indianapolis unless costs there are reduced.
In addition, the company said it would shut one of its three truck-making plants, which are located in Springfield, Ohio, Fort Wayne, Ind., and Chatham, Ontario, but it has not decided which one. The Springfield and Fort Wayne plants each employ about 3,200, and Chatham employs about 1,000.
City officials in Fort Wayne and Springfield have been trying to arrange tax concessions and other incentives to keep local Harvester plants open, but one analyst suggested that one of those two plants is likely to be closed so IH can preserve its Canadian truck operations.
Harvester also said it was considering closing one of its two diesel engine plants--Indianapolis, employing 1,100 workers, or Melrose Park, Ill., employing 700--and consolidating engine production at the remaining facility.
The company said it was putting up for sale a facility in Canton, Ill., that makes agricultural implements and employs 500 and a metal-stamping plant in Shadyside, Ohio, employing 200. The sale of the construction equipment business, which has North American plants in Libertyville, Ill., and Candiac, Quebec, would affect another 650 workers.
Earlier this year, Harvester announced plans to close or sell eight other small plants and foundries, and last year it shut down a brand-new truck plant in Wagoner, Okla. Most of Harvester's remaining manufacturing operations will be centered in the East Moline-Rock Island, Ill., area, where the company makes farm tractors, as well as at the two remaining truck plants
Analysts have been saying for months that Harvester must severely prune its operations if it is to survive. Many observers inside and outside the company were critical of former chairman Archie R. McCardell, who was reluctant to make such slashing cuts in the company. McCardell was forced out in May and replaced by Menk, who immediately embarked on plans to restructure Harvester. "It looks like they're doing finally on an operating basis what they should be doing," one analyst said yesterday.