The Struggle to Cope with Recession

ECONOMISTS may debate whether or not the U.S. economy is in a recession, but many businessmen know that their own companies or industries are caught in a serious slump--and they are taking steps to cope with it. Seldom has the transition from buoyant optimism to spreading doubt come so abruptly for such a large cross section of manufacturers. As a result, businessmen are paying new attention to costs and gaining added respect for the old-fashioned virtue of thrift. In pursuit of more efficiency, executives are questioning old operating methods, eliminating frills, curtailing the output of unprofitable or barely profitable products and, of course, firing unneeded workers.

Almost all companies have devised internal economy drives. Overlooking no small economies, Boeing circulated a memo noting that the company would save $100,000 a year if all unneeded lights were turned out promptly. North American Rockwell banned the use of company planes by fewer than three executives. Allied Chemical will put out an annual report of only 16 pages compared with last year's 25. At Jones & Laughlin Steel Corp., President William Getty began personally checking the expense accounts of executives reporting to him.

Often the impact of such penny pinching is mostly psychological, instilling within employees the realization that hard times are at hand. Still, companies that have a well planned overall approach to cost cutting get impressive results. Pittsburgh's PPG Industries two months ago began bringing small groups of employees together in "value analysis sessions," and has already discovered how to save $200,000 a year by trimming paper work. TWA set out to save $25 million in 1968, and since then has reduced its annual operating expenses by $54 million. The airline saved $450,000 in import taxes alone by switching to U.S.-made dinnerware.

Try to Collect. Companies from the largest steel manufacturers to the smallest clothing retailers are now slower to pay their bills. "Everyone is trying to live off everyone else's money," notes a Pittsburgh valve maker. Adds Irving Zeiger, owner of five manufacturing companies in Southern California: "No one, but no one, pays in 30 days. There is no money in the country--period." The squeeze is being felt all along the line. Big companies delay in paying their smaller suppliers, who in turn string out their payments to the two-and three-man shops that they buy from. "One of the problems," says Dan Bryant, president of Bekins Moving and Storage, "is how to collect your bills without irritating people."

Managers are scrambling to get the most out of their money. More than ever, they are trying to earn extra income with their cash flow by buying and selling short-term commercial paper. Treasury bills, and Eurodollars --even for a weekend. Financial vice presidents and accountants, always key men in management, are becoming increasingly important. Some companies use creative accounting maneuvers to raise their short-term profits--for example, amortizing over several years costs that in fatter times were simply deducted from profits all at once. "I have never known a period in which clients have made more ingenious suggestions," says a partner in a Manhattan accounting firm.

While accountants are rising to greater glory, salesmen are under new pressure. They are finding that the telephone is no longer a substitute for a personal visit. "They have to become salesmen again," says Eugene Jannuzi, chairman of Pennsylvania's Moltrup Steel Products Co. There is a much longer delay between a customer's inquiries and the actual placement of orders. Robert Dickey III, president of Pittsburgh's barge-making Dravo Corp., complains that customers now wait until the last minute to seal deals that would have been immediately snapped up six months ago.

Early Retirement. At many companies, people are the most readily cuttable expense. Boeing reduced its payroll $75 million last year by eliminating 14,400 jobs; this year it expects to drop 18,000 more employees. The company, which has been beset by aerospace cutbacks and fears a falloff in airline orders, dropped 5,040 workers in January alone. Last week the Labor Department reported that total U.S. unemployment had increased sharply from an annual rate of 3.5% in December to 3.9% in January, the highest level since October 1967. By historical standards, that is still low for a time of recession. One reason that the rate has not risen higher is that many companies are hoarding scarce skilled labor.

Even so, the automakers, whose year-to-year sales were down 16.5% in January, have laid off 17,194 of their 1,036,033 U.S. workers for an "indefinite" period. U.S. Steel has furloughed 1,200, and more temporary layoffs are expected this month. The company is also thinning the ranks of office workers and executives, aiming to reduce its salaried payroll by 10% or more. One $20,000 middle manager, who had been with U.S. Steel for 35 of his 62 years, received only two weeks' notice that he was to be retired. More disappointed than bitter, he said: "It seems to me that I deserved more than that--at least two or three months." The question of sufficient advance warning bedevils the executives who have to break the news. Some officers insist that short notice is better than several months because the presence of resentful early retirees might affect the morale of other workers.

To save money, many plans are being deferred or stretched out. The steel industry last year reduced its capital spending from a projected $2.4 billion to $2.1 billion, and hardly any industry leaders still expect this year's forecast of $2.2 billion to hold up. Wheeling-Pittsburgh Steel Corp. is switching the product mix of its flat-rolled steel line; the company plans to produce fewer unfinished items and more higher-priced finished steels used for auto bodies and appliances. Aluminum Co. of America is dropping some marginally profitable lines, notably welded tubing and automobile pistons. Inventories are coming under closer scrutiny. Ford announced two weeks ago that it will soon shutter its Pittsburgh parts warehouse and send parts by truck directly from Detroit.

The companies in the best position to cope with a slowdown are those that were as cost-conscious during prosperous years as they are in the lean. One of the best cost-analysis programs is that of Continental Can Co., which in 1963 began setting annual goals of "method improvement." For example, instead of producing cans at one central plant and shipping them to customers--"moving a lot of air around the country," as one executive says--the company located its sheet-steel processing plants near the steel mills. Then it shipped the sheet, cut to size and printed with the customer's product name, to fabricating facilities located close to --and sometimes inside the plants of --the major users. The overall program has produced savings of $8,000,000 a year, or nearly $50 million since it began. Two weeks ago, when some other companies were reporting substantially lower profits. Continental Can announced that its earnings rose 8.3% last year to $90.4 million.

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