GKN, the automotive and aerospace giant, is to switch 20 per cent of its production of driveline components for cars to low-cost countries such as China, Mexico and Poland.
The radical cost-cutting plan unveiled yesterday will lead to the transfer of between 2,000 and 3,000 jobs from continental Europe, the US and Japan to new low-cost centres over the next three years, saving the group £40m a year. The one-off cost of the transfer of production will be £200m, of which some £140m will be a cash cost.
The move makes GKN the latest in a long line of manufacturing companies to take advantage of low labour rates in Asia, South America and Eastern Europe, where the costs of employing a worker can be a quarter of those in developed countries.
GKN is the world leader in the manufacture of constant velocity joints for cars and trucks, with about 40 per cent of the global market worth £1.6bn a year.
But Kevin Smith, GKN's chief executive, said it needed to concentrate more on high-growth regions of the world where demand was increasing at a rate of 10 per cent a year compared with typical growth of 2 per cent a year in Western Europe, Japan and the US.
GKN's driveline division employs about 22,000 people, of whom 1,200 are in the UK. About 14,000 are involved in manufacturing and the rest in engineering and development.
It will mainly be manufacturing jobs that are shipped to low-cost regions. At present about 30 per cent of driveline production is in low-cost countries, 40 per cent is in Western Europe, 20 per cent in the US and 10 per cent in Japan.
By 2007, half of all driveline production will be in low-cost countries. Mr Smith said the UK would not be very heavily affected by the jobs transfer because of the low numbers now employed here.
UK workers have been hit by the trend for companies to shift factories to exploit cheaper wages, with groups such as Raleigh and Dyson shutting plants here and setting up in Eastern Europe or Asia.
Together with further restructuring of GKN's US sinter metals division, also announced yesterday, the company expects cost savings to reach £60m by 2007.News of the jobs transfer came as GKN reported an 8 per cent decline in pre-tax profits to £246m on sales up 3 per cent to £4.6bn. GKN said it automotive division, which accounts for just under half of all sales, had been affected by the decline in car markets in the US, Europe and Japan. An increase in pension contributions also cost the group £17m.
The group was further hit by the downturn in the civil aerospace market, with both Airbus and Boeing delivering fewer commercial aircraft, and Mr Smith said he did not expect a pick-up until 2006.
Despite what it described as "challenging markets", the group demonstrated its confidence in the outlook by lifting the dividend for the year by 2.7 per cent to 11.6p.Reuse content