Toyota announced plans Thursday that will cut the compensation of every one of its manufacturing employees in North America, from top executives to assembly line workers.
The plan will see executives give up anywhere from 25 percent to 30 percent of their total pay, while salaried workers will see a decrease of around 20 percent and production workers will receive smaller bonuses. Production workers at the Georgetown plant, the largest private employer in Central Kentucky, will lose at least a few thousand dollars annually.
The plan avoids layoffs, which have become frequent at rival automakers, but does include a buyout program, reduced work weeks at some plants and no wage increases for the foreseeable future.
Georgetown, the company's largest North American plant, is not likely to be among those with workers forced to work fewer hours, said spokesman Rick Hesterberg. However, its employees will be affected by the other moves.
Another major factor for production employees' pay is Toyota's earlier decision to cut overtime.
Jerry Bell, a group leader in body welding, said a typical body weld employee might see a rough drop in pay of $10,000 to $15,000 because of overtime loss.
He also said he knows employees around the plant who are applying for second jobs to supplement their income.
"They've basically lived on their overtime," he said.
The recession has taken a heavy toll on Toyota, like the rest of the auto industry,
"We regret, obviously, as a company, having to take these steps," said Jim Wiseman, vice president of external affairs for the company's North American manufacturing headquarters in Erlanger. "We're talking about a significant impact on many people and many families ... but I think the general reaction that we're taking this approach rather than big layoffs has been very positive."
The pay cuts for executives include eliminating both bonuses and 5 percent of base salary, Wiseman said, while salaried workers will lose their bonuses but not see a wage cut.
For the assembly line workers, the effect on pay will be "much less" of a percentage drop, but their bonuses will be reduced in coming months and there will be no wage increases for the foreseeable future, Hesterberg said.
Production employees at the Georgetown plant had an average annual raise of 2 percent over the last five years, Hesterberg said.
The company also will cut a discretionary bonus for them that has ranged between $2,000 and $2,400 the past five years.
A second bonus program that measures factors such as safety and production efficiency is down to around 9 percent on top of normal pay rather than 11.3 percent as in years past, he said.
For Bell and his wife, the reduced overtime pay and his eliminated bonus means deciding whether his twins will continue in private school.
"We cut our phone bill last night," he said. "We want to live the same lifestyle, but we have to make cuts. We were hoping to take the kids to Disney World, but it may be (a vacation) around here."
Despite the concerns, he said, Thursday's announcement was a "small sense of relief" to many employees because they had feared worse.
"There's still some concern," he said, "because we don't know where the bottom of the economy is."
Toyota also is offering a buyout package, though executives doubt many people will apply because of the economy's uncertainty.
Employees will receive 10 weeks' pay plus an extra two weeks of pay for every year of employment, Wiseman said. In addition, they'll be given a lump sum of $20,000. While the sum is given with no strings attached, company officials think it might be used for health insurance, since the buyout does not offer an insurance package other than Toyota's normal retiree package.
"We haven't set any targets for it," Wiseman said of the program, though he estimated anywhere from 2 percent to 5 percent of employees might take it.
Georgetown is the oldest of Toyota's North American-owned plants, but executives said it was not likely that it would see a large wave of buyouts among its roughly 7,000 employees.
If it does, the company might transfer employees from other plants, Hesterberg said, "but we don't really think that will be the case."
The plan also continues steps that Toyota began late last year to idle assembly lines on normal operation days. That will continue into the end of April, with Georgetown's days likely to be in the same range as most other plants, Wiseman said.
The plant also announced last year that it would cut many temporary assembly line workers. The 500-person workforce will be phased out completely by March 13, Hesterberg said.
Georgetown is not expected to see regular full-time employees take a reduced work week and less pay. Wiseman said that plan will probably affect plants in Indiana and Texas that produce SUVs and pickups. An Alabama plant that produces engines for those vehicles, which have seen worse sales than the cars produced in Georgetown, might also be affected.
"Of all our North American plants, Georgetown has one of the best model mixes," Wiseman said, adding it's "one of the best situated for us."
Georgetown workers produce Camrys, Camry Hybrids, Avalons and the new crossover Venza.
These moves are expected to help Toyota drop vehicle inventory to around a 50-day supply by May, better than the current average of 85 days.
"Our general feeling is, we take the necessary measures today and when the market does come back, we'll be bigger and even better," Wiseman said.
Wiseman said the company hopes to avoid laying off regular full-time workers.
"I said 'never say never,'" Wiseman said, "but what you can look for from us if this slump continues over the long term, or heaven forbid gets worse, is we'd approach it from this fashion. Share the sacrifice. That's our way."