Isuzu slashes 9,700 jobs

Isuzu says it will shed one quarter of its work force in three years

By CNN's Alex Frew McMillan in Hong kong

TOKYO, Japan (CNN) -- Isuzu Motors Ltd. will eliminate 9,700 jobs in a huge restructuring, it said Monday.

It also announced losses in line with expectations but predicted a profit in the year ahead.

The job cuts, to come in the next three years, account for 26 percent of its worldwide work force of 38,000.

Isuzu, which makes trucks and sports utility vehicles, will close its plant in Kawasaki by 2005 and consolidate other operations to cut costs and boost capacity.

Its stock built on a recent run-up, closing 3.9 percent to the better Monday at 290 yen.

The cuts are part of one of Japan's largest turnarounds, as Japan's largest truck maker tries to come back from years of losses. Isuzu set a net-profit target of $250 million (30 billion yen) by fiscal 2004.

Isuzu also announced Monday that it lost $552 million (66.8 billion yen) for the year ended in March. That's an improvement over the previous year, when it lost $987 million.

Analysts skeptical about profits

Isuzu predicted further losses in the first half of this year. But it forecast Monday it would turn that around, posting a profit of 1 billion yen for the year through March 2002.

Analysts are skeptical whether Isuzu can turn into the black this year. There is still vast overcapacity for trucks in Japan and the rest of Asia. Flagging economies there hold little hope for a turnaround.

Isuzu has had slim benefit from cutting costs before, and some observers believe these new efforts merely react to a market that has already gone sour. Analysts say consolidation among Japan's four big truck companies is likely necessary.

"Nobody can really make money out of this market," said Koji Endo, Japan auto analyst at Credit Suisse First Boston.

Endo said Isuzu had made significant cost cuts already, "so how much of the further reduction is possible remains to be seen."

Attrition and retirement

Isuzu said it would boost capacity use from 50 percent now to 90 percent. It is consolidating production at its Fujisawa plant and moving pick-up truck production to Thailand.

Like most Japanese companies in turnarounds, Isuzu is not laying off workers. It said it would achieve the job cuts through attrition, by freezing hiring and with an early-retirement program.

It is also eliminating 3,000 of the jobs by selling noncore businesses. The Tokyo-based company will trim the number of its affiliate companies by 40 percent, from 109 companies now. It will liquidate or sell lackluster subsidiaries.

Isuzu has been decimated by a slump in Japan's economy. The large-truck market in Japan, which hit almost 200,000 trucks a year at the height of the bubble economy, is now around 80,000 a year.

That has hurt all of Japan's four truck makers. Capacity use fell below breakeven, meaning they lost money on the trucks they made. But they exacerbated the flow of red ink by giving greater discounts, to hang onto market share.

Analysts believe the poor demand will force a consolidation among the big players: Isuzu, Mitsubishi Motors, Nissan Diesel and Hino Motors, 34 percent owed by Toyota.

"The market will only get back to 100,000 to 120,000 at best of times," said Steve Usher, Japan auto analyst with J.P. Morgan. "There are too many competitors."

Isuzu started turnaround in 1992

Isuzu has been trying to remake itself for years. It started to restructure in 1992 and launched a new initiative in 1998.

But Isuzu noted that Japan's persistent economic slump and a "nosedive" in key Asian markets still led it to perform badly. Prospects are not good unless it cleans house.

"Isuzu understands its fundamental earnings power still remains very weak, given the need to cope with the rapidly-changing business environment," the company said, in a statement.

Usher noted that the company has never performed particularly well. Since 1983, when it started reporting consolidated results, its aggregated profit margin is a scant 0.6 percent.

"It's hard to say this company has been a successful operating company in the past," Usher said. But he said the current plan looks "very reasonable and achievable," based on an operating-profit target of just 4 percent.

General Motors owns 49 percent of Isuzu. But the American company has typically taken a back seat when it comes to its Japanese partners.

Isuzu said it would improve operations by leaning on GM's technology, as well as looking to cut costs by using GM's purchasing and sales networks.

Endo said there is little GM can do, other than harmonizing operations where it can.

"GM could give more money to Isuzu, but the basic fundamental problem is still demand for trucks in Asia," Endo said. "The problem is how quickly they can implement all these measures, otherwise demand might continue to slide in Japan and Asia."

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