James Cowan kept hoping that he had hit rock bottom with the layoffs at American Railcar Industries Inc. But as he made a third round of cutbacks in two years, it was getting really hard to believe that his luck was about to turn around.
“Part of the reason we went through it three times was when we did our first assessment, we thought the business was going downhill,” says Cowan, the company’s president and CEO. “Then a couple months after that, you realize once you are going through the first cuts that the dire strait is going to be more dire.
“So now you’re a quarter later, maybe four months later, [and] we thought we were going to get this order or that order and none of them came through. So our backlog continues to go down. Then you make the second wave of cuts. The same process. You go two or three or four months and you realize you thought it was going to get bad and now it’s worse than bad.”
Cowan is certainly not alone in his business struggles, but the railcar industry has been hit particularly hard by the weakening of the economy over the past few years.
“The whole industry is at 15 percent capacity,” Cowan says. “I didn’t foresee that two years ago. I thought it might get to 30 percent. When you go from 85 to 90 percent capacity to 30 in a year and from 30 to 15 in another year, that’s pretty brutal.”
So what do you do when it appears as though the walls around you are crumbling before your eyes and the business you’re leading seems to be on the verge of extinction?
“The hardest thing is to downsize a business,” Cowan says. “You don’t want to cut out the muscle. You hate to tell anybody that they are not needed in the business. But as the business starts to shrink, you have to consolidate efforts and make do with fewer people. Obviously, there is a cost to that.”
While railcars, by the name of the business itself, are obviously a core for Cowan, he needed to look in other directions to make ends meet.
“We’re good with heavy fabrications,” Cowan says. “So you take a look and see if you can make some headway in other markets there. Margins can be embattled and very thin, so it always makes you wonder. You can ramp down a business, but you still have to see profitability in your future.”
At 1,335 employees and $423.4 million in revenue at the end of 2009, American Railcar was down substantially from its revenue of $808.8 million in 2008. It really becomes about survival and your ability to make the tough decisions to stay alive until business begins to pick up again.Make the tough calls
When you’re in a situation when you know layoffs are going to be needed, you need to start asking everyone on your leadership team the same question over and over and over again.
“Does that activity add value for our customer?” Cowan says. “If it does not or if you’re not sure, you have to ask yourself, ‘Why are we doing it?’ The only thing we get paid for is providing a product or service to the customer. Do the activities we are discussing add value to our customer? We still hung in there with our innovation efforts and our customer solution efforts. We knew those either were going to add value to the customer or were about to add value. If it’s not adding value to the customer, consider it to be a wasted activity. It’s probably something you could survive without.”
At American Railcar, when the need for cuts was becoming clear, Cowan gathered his senior leadership team and met with them in the executive conference room.
“I showed them the top lines of the company and said, ‘Hey folks, here’s our build schedule going forward for six to 12 months,” Cowan says. “It was no surprise to any of them. They all knew it was gloomy and getting gloomier. We were kind of running ourselves out of business, and so, we had to slow down where we could.”
When you’re talking about the lives of your employees and their future with your business, you can’t afford to be anything but completely upfront about it.
“You have to set a goal,” Cowan says. “I told them, ‘Let’s see if we can do without 25 percent of our staff.’ And this isn’t all just people. You obviously have to take a look at other areas of the business where you can make some cutbacks that would be substantial. But people are a large cost, obviously.”
Once you’ve announced that cutbacks are going to be made, give your team members a chance to mull it over and think about what they can live without.
“Tell them in two or three days, let’s get back together,” Cowan says.
If you come back and you get the response that your leaders don’t feel like they can lose the number of people you believe they need to lose, you’re going to have problems.
“If that’s the case and your bottom line continues to deteriorate, you’re going to quickly get caught up with not having any customers, because you’re going to run yourself out of business,” Cowan says.
“I know a lot of people think business should be benevolent and be an employer first and a profit-maker second. But any business that is running red ink for a sustained number of months is heading quickly to going out of business. If that was still the case and you’re still drowning in red ink, you haven’t thought about what few customers you may have left.”
Fall back on your question about whether the activities in each department add value to the customer. Ask your team members who they can live without to keep the business going. Acknowledge that it’s a brutal decision to make, but it’s one that has to be made in order to keep the company in business.
“It all goes back to if you kept everybody and the business goes out of business, then we all lose our jobs,” Cowan says. “If the 2,500 can go to 1,500 and we can make it through the downturn, we can come out of it a stronger company. That’s certainly the goal you have in mind when you do start.”
If it’s your first round of cuts, you can certainly look at early retirement candidates and people who may be looking to leave of their own accord. You should also know who the people are that you truly can’t live without, who you’ll need to succeed when things do turn around.
“These are the veterans with tons of experience and tons of customer contact and tons of technical knowledge and brilliant accounting knowledge of how to finance and fine-tune a company,” Cowan says. “Those 50 to 100 folks, in any business, you better know who those top handfuls of folks are and be sure you protect them.Be professional
Your reputation can hinge on how you handle the act of laying off people. So make sure you’re clear with your people about how you want it handled.
“Any time we’re talking about cutting staff, until we’re ready to announce what the plan is going to be, it’s only fair that they hear it from management first and not through the rumor mill,” Cowan says. “None of us would want to be let go at the coffee machine or from the janitor. That will really get everybody in a panic. You have to announce that. Say it at the beginning of the meeting and say it at the end of the meeting. ‘This is truly confidential. It has to remain such.’”
If you do have leaks in your company about important items like personnel moves, you need to address them seriously and immediately.
“This is a terminating offense,” Cowan says. “When I say it’s confidential and you’re in the room and the door is closed, then you have to understand my trust in you and you keeping your mouth shut. We don’t want panic in the company. If I didn’t know who it was, I wouldn’t have the least problem telling them, ‘When I do find out who you are, you won’t be working here. You won’t be on the layoff list. You’ll be on the termination list.’ If that’s the problem, you have to put a bold, nasty statement out there.”
As for the actual announcement itself from the company to the employee who is being let go, it should come from the direct supervisor.
“Anybody that reported to me that I had to let go, I talk to them directly,” Cowan says. “If you need help with an HR professional, we have those on staff. It needs to be delegated. It’s part of their responsibility. It’s fun promoting folks and giving raises. But there are also people you have to fire, and sometimes you have to do layoffs.”Find reasons to believe
Survival has to be about more than just huddling up in a conference room to make cuts and then waiting for the economy to turn around. You need to make an effort to find opportunities for success and jump on them. You need to let your people know what these opportunities are, however limited they may be, and how to capitalize on them.
“You are the communicator in chief,” Cowan says. “You have to keep doing it. You have to talk about, ‘Yes, the times are tough.’ But you have to go out there and show them some rays of light, some hope that this too shall pass. The world isn’t coming to an end. Whatever cliché works for you. Here are the sparks.”
American Railcar looked into the more than 700 parts that make up a railcar.
“We only make a few hundred of them and we buy the rest,” Cowan says. “Where could we do more integration into our own internal supply? Where did it make sense to do that?
“Our innovation teams work on different components of the car that the customer is looking for improvement on,” Cowan says. “We’ve made all car types in the last 110 years. But with some, the market has been so depressed we haven’t made them or we’ve been out of them for a few decades. So we’ve gotten back into a few other car types. Those are areas where a team of folks have to get involved. The short answer is keep the people focused on growth and new exciting opportunities within the company.”
It’s not that you’re ignoring what happened and you certainly don’t want to discourage people who have questions and concerns from bringing those up with you.
“You can’t be afraid to talk about it,” Cowan says. “It’s the 800-pound gorilla in the room. You have to tell them, ‘It’s tough. We don’t like it. We wish it hadn’t happened.’ … Try to keep it as positive as you can.”
As Cowan looks to the future, being positive is beginning to get easier.
“I have $330 million of cash in the bank,” Cowan says. “We’re investing a small amount in India, and we’re going to build product that stays in India. It’s not going to come back here and displace American workers. We’ve also started to see some of the customers that normally only buy railcars every five to eight years realizing they had a great opportunity to buy at a fairly low price.
“We’ve had a lot of growth initiatives that our board has allowed us to pursue. We continue to look for other areas to excel and grow. We’ve broadened our product mix and our customer footprint from where we were two years ago. All of that is positive. It can make us a little more picky in terms of products we do produce. Hopefully, they’ll be at a strong margin for the company.”
How to reach: American Railcar Industries Inc., (636) 940-6000 or www.americanrailcar.com