DETROIT, April 13 American Axle & Manufacturing Holding Inc. plans to close a plant in Buffalo, New York, that makes parts for trucks, United Auto Workers union President Ron Gettelfinger told union members late Thursday.
"However, we are in negotiations in an attempt to have new work brought into the plant," Gettelfinger said in an online message. "We recognize this is a difficult challenge, but we are not giving up on this effort."
American Axle, which earlier this year said it would idle a portion of production capacity at plants that make products for mid-sized sport utility vehicles, has about 700 employees at the Buffalo plant. The facility makes parts for mid-size pickup trucks and General Motors Corp's (GM.N) Hummer H-3.
Analysts responded positively on Friday, saying a closure of the plant would boost the auto parts supplier's earnings and could be a prelude to wage concessions.
"The ongoing cost savings associated with closing Buffalo are significant, due to the very high wages paid to AXL's U.S. workers," Lehman Brothers analyst Brian Johnson said in a note, estimating the wages at $50 to $60 per hour.
Johnson had said in an earlier note the potential savings for moving work from Buffalo to Mexico would boost the company's earnings by $1.22 per share, based on 1,000 employees.
American Axle, which lost $4.42 a share in 2006, offered buyouts and retirement offers to its blue-collar work force last year. Nearly 1,500 workers, or one-fourth of the company's unionized employees, accepted the offers.
"Following its successful buyout program, it appears that here are now 700 employees left at Buffalo, implying potential savings of around 85 cents per share from the Buffalo plant," Johnson said.
JPMorgan analyst Himanshu Patel said it is unlikely the union would be able to bring any new business into the plant. "We doubt that would happen without a meaningful reduction in existing UAW wages/benefits," he wrote in a note.
The union's current contract expires in March 2008, and Gettelfinger said the UAW does not plan to provide any concessions to the supplier before contract negotiations.
Lehman's Johnson said closing the plant would show the company's resolve to get to a more competitive labor cost structure ahead of its contract talks.
"Closing the Buffalo plant would send a strong signal to the UAW that it needs to make concessions at AXL's Detroit plants, if it wants future business to be sourced in the U.S.," he said.
American Axle spokeswoman Renee Rogers declined to say if the company plans to close the plant. "We are saying nothing beyond the plans we stated last January."
"We are idling some capacity at our U.S. plants for the mid-size light truck segment and Buffalo is one of those plants."
Rogers said the plant mainly serves GM, which is likely to cut production of trucks and SUVs as demand for those vehicles because of a weaker economy and a consumer shift to more fuel-efficient vehicles.
(Additional reporting by David Bailey in Chicago)