Monday, October 29, 2012

Dana considering layoffs as Obamacare costs mount


Dana Holding Corp., recently announced their third quarter results, reporting a 12% decrease in sales and net income of $56 million, compared to with $110 million for the same period in 2011.

The global auto parts manufacturer properly characterized their earnings as solid, and several media outlets covered the details.

Most of the news reports also mentioned the letter President and CEO Roger Wood sent to employees that called for continued vigilance in light of falling commercial vehicle demand in North America and continued economic uncertainty.

The uncertain global economic environment continues to put pressure on production in Europe, China, and Brazil. In North America, as evidenced not only by our earnings release, but by many other companies as well, there is a looming concern in the economy. The threats of a fiscal cliff, along with increasing taxes on small businesses, are holding down job creation and optimism for growth in the United States. These economic factors affect Dana in that we must always be sure that we are keeping our costs in line with our revenue changes.

But that's where most media coverage stopped. The next paragraph in the letter told the real story:

We must also offset increased costs that are placed on us through new laws and regulations. For example, the Patient Protection and Affordable Care Act, also known as “Obamacare,” is expected to cost Dana approximately $24 million over the next six years in additional U.S. health care expenses. This is a cost that our customers are not willing to cover, mandating that we reduce our overhead expenses to cover them.

Yes, you read that correctly: $24 million over the next six years. And they can't pass that along to their customers, so they have to reduce their overhead.

That means layoffs, because there's really no other way for a company to cover that much expense, especially in a recession.

In June, Dana employed 25,500 in 47 countries. By September, they'd shed 1,000 jobs, some of them from planned actions like their divestiture of their Fredericktown, Ohio, facility; the planned closures of their Longview, Texas, and Toledo, Ohio, facilities; and the consolidation of their Rochester Hills, Mich., and Milwaukee, Wisc., plants into other facilities.

But last Friday they laid off seven white collar staff at corporate offices here in the Toledo area. I've been told by company insiders that more are being considered.

So while President Barack Obama is campaigning on his auto bailout and the jobs it supposedly saved, his Affordable Care Act - Obamacare - is going to cost jobs ... in that same automotive industry.

Dana may be able to survive the increased costs of "affordable" care, but not without consequences for some of their employees. Other small businesses and their workers won't be so lucky.

Where will the jobs be then?


***Dana is a world-leading supplier of driveline, sealing, and thermal-management technologies that improve the efficiency and performance of passenger, commercial, and off-highway vehicles with both conventional and alternative-energy powertrains. The company's global network of engineering, manufacturing, and distribution facilities provides original-equipment and aftermarket customers with local product and service support. Based in Maumee, Ohio, Dana employs approximately 24,500 people in 27 countries and reported 2011 sales of $7.6 billion. For more information, please visit www.dana.com.

Here is the full text of the letter, confirmed as accurate and complete by Dana:

October 26, 2012

Dear colleague:

Today we announced earnings for the third quarter of 2012, and I want to thank all of you for your hard work in achieving solid results. We have seen volatility throughout the entire year, but in the third quarter we saw a rapid softening of demand in some of our key markets. Most significant was the decline in our North American commercial vehicle market, where production rates are now below those of last year.

Looking forward we see opportunity, and also continued headwinds. The uncertain global economic environment continues to put pressure on production in Europe, China, and Brazil. In North America, as evidenced not only by our earnings release, but by many other companies as well, there is a looming concern in the economy. The threats of a fiscal cliff, along with increasing taxes on small businesses, are holding down job creation and optimism for growth in the United States. These economic factors affect Dana in that we must always be sure that we are keeping our costs in line with our revenue changes.

We must also offset increased costs that are placed on us through new laws and regulations. For example, the Patient Protection and Affordable Care Act, also known as “Obamacare,” is expected to cost Dana approximately $24 million over the next six years in additional U.S. health care expenses. This is a cost that our customers are not willing to cover, mandating that we reduce our overhead expenses to cover them. On a positive note, we have made the decision to increase the investment in our global engineering spending to facilitate our growth plan. And we are committed to not allowing this increase to become an excuse for the earnings performance of our company. These challenges require all of us to be innovative and focused to meet the increased cost burdens with creative ways to accomplish our current performance expectations and future growth objectives.

To counter some of the challenges ahead, we have and are taking aggressive steps to manage costs in each and every aspect of the business. These actions include reducing material costs, taking the complexity out of our products and processes, and reducing our conversion and overhead costs. It is most difficult when our colleagues are affected, but we must take action now, with the outlook as we see it, to ensure that we are competitive in the future.

When I joined Dana 18 months ago, I saw the great potential of this company to move from a survival mode story to a profitable growth trajectory. We have made great strides in our vision to become the global technology leader in efficient power conveyance and energy management solutions. We are on our way to this vision, with a solid plan in place to get there. Working together as One Dana, we are becoming a lean, efficient, results-driven organization with a renewed sense of urgency. We are also investing in technology that supports our growth strategy.

This new Dana requires all of our ongoing diligence in reducing cost and complexity, which is essential to fueling our growth and mitigating mandated costs. Even amid volatile market conditions and increased cost mandates that are placed on our business, I am confident that continued discipline and flexibility will help Dana to remain strong. Consistent with our culture and operating model, I encourage each of you to bring forward your ideas to improve efficiency, eliminate waste, and move us forward.

Thank you for your cooperation, and I look forward to working with you as we meet these challenges together.

Sincerely,

Roger J. Wood
President and CEO

10 comments:

Rick said...

I'm confused. So $24 million in additional health care costs for Dana Corp over 6 years. For 24,500 employees? That comes out to be an extra $163 per employee per year or an extra $14 per month. Their margins are so thin that they can't handle $200 a year in additional health care costs? Sounds like the president of Dana Corp should take a pay-cut. Or... am I misunderstanding the issue?

Maggie Thurber said...

Rick - I believe those are administrative costs alone - not the entire costs of medical insurance under Obamacare...but you raise a good point and I will try to find out more.

Rick said...

Maggie, thanks. Right-wing bloggers are using this letter and these figures to show that Obamacare is hurting "small businesses." Of course, no one bothers to actually check the math. I'm curious to see what additional information you come up with.

Jeremy Martin said...

Rick, do you think the employees would experience better healthcare increased ADMINISTRATIVE costs? As we know the costs of Federal government programs, costs only go up and up. The 24 million is just a starting point.

http://www.toledoblade.com/attachment/2012/10/26/Letter-from-Dana-CEO-Roger-Wood.pdf

Jeremy Martin said...

Notice another nugget: "On
a positive note, we have made the decision to increase the investment in our global engineering spending to
facilitate our growth plan."
They are forced to layoff US employees and hire non-US employees as a result of Obamacare. Thanks Obama!

Rick said...

Jeremy, "forced" to layoff employees and outsource. Because of OBAMA? HAHA! And yes, I think that when more people are covered by affordable insurance, that's a good thing.

Jeremy Martin said...

Rick, Dana is forced to pay an additional $24 million in administrative costs due to Obamacare. That's the entire point. The $24 million (at minimum) in extra administrative overhead, regulations, and mandates make insurance MORE expensive and less affordable. If affordable insurance is our goal, the first step is repealing Obamacare to free the states to pursue commonsense policies.

Rick said...

How much does Dana's CEO make, Jeremy? And how does he even know how much it will cost? And why should we even believe his press release? Anyway, it doesn't matter. Obamacare is NOT going to be repealed. You had your chance last Tuesday and you lost. By a lot.

Jeremy Martin said...

What bearing does CEO pay have on health insurance cost? We should believe the press release since a materially false press release from a public company's CEO would be lawsuit material.
Obviously we have a difference of opinion on health insurance. The difference is our approach. Conservatives let people pursue their own dreams, conservative or liberal. Liberals use force to coerce people into their liberal ideas. I don't mind if people want to subject themselves to 1,000 layers of red tape. I just don't want anything to do with the Obamacare disaster.

jtcalc said...

i work at dana in lima ohio they laid off ten white coller workers fri nov 9 and no temp workes at all.No one has said nothing to any of us.

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