The Wall Street Journal, December 30, 2008, Tuesday

The Wall Street Journal

December 30, 2008, Tuesday

The Wall Street Journal

No-Layoff Policies Crumble
Companies That Have Avoided Job Cuts in the Past Find This Recession Is Different

Until recently, Enterprise Rent-A-Car Co. prided itself on a 51-year history of never laying off a U.S. employee. When competitors slashed fleets and shuttered branches after the Sept. 11 attacks, Enterprise kept hiring.

This fall, though, the nation's largest car-rental agency said it would dismiss 1,000 of its 75,000 employees, as Americans curtailed driving and flying. "These types of declines are unprecedented," says Patrick Farrell, Enterprise's vice president of corporate responsibility.


Getty ImagesThe deepening recession is prompting layoffs at long-established employers that avoided job cuts in previous downturns. These layoffs demonstrate both the severity of the current recession and the continued erosion of workplace norms that once shielded many U.S. workers from permanent job loss.

Several of these employers are in hard-hit industries. Employment in the car rental and leasing sector, for example, fell 3.3% in October from a year earlier, according to the U.S. Bureau of Labor Statistics. Gentex Corp., a Zeeland, Mich., automotive supplier, conducted its first layoffs in 34 years this month amid plunging car sales. Declining gambling revenue prompted the Little River Casino in Manistee, Mich., to dismiss 100 of its 950 employees in November, the first layoffs in the resort's nine-year history.

Waning Stigma
Some workplace experts say such layoffs show that the stigma associated with permanent job cuts -- unthinkable to many employers three decades ago -- continues to decline. They say companies find it easier to let go of workers when rivals and other employers also are eliminating jobs.

"Companies really respond to these things based on what they think they ought to be doing," says Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania's Wharton School. "They watch what their competitors do and listen to what the investment community tells them."

Kevin Hallock, a professor at Cornell University's School of Industrial and Labor Relations, says as layoffs become more common, managers may find it easier to discount the human and business costs. He recalls a group of senior executives who broke into tears after announcing their company's first layoffs. When Mr. Hallock returned to the company six months later, the same executives were discussing another round of job cuts in "the starkest economic terms."

"It was a really difficult thing for them the first time," he says. But "they got over that hump."

Many of the employers conducting their first layoffs say they first tried other ways to cut costs, such as freezing salaries or drumming up work for idle employees.

Enterprise managed to grow through past recessions. Its business, based largely on referrals from insurance companies, was mostly immune to volatility in airport traffic. But the 2007 acquisition of rival Vanguard Car Rental Group Inc., parent of the Alamo and National brands, increased Enterprise's stake in the airport rental market and added 10,000 employees, leaving the company more vulnerable to economic factors heading into 2008.

For most of this year, closely held Enterprise skirted the drop in rentals that hit some competitors as fuel prices climbed. But in its fiscal first quarter, which ended Oct. 31, revenue at the St. Louis company dropped 4%. Enterprise initially slowed hiring, froze salaries and reduced overtime. In mid-October, Chief Executive Andrew Taylor urged employees in a companywide email to seek "additional opportunities to reduce expenses."

Two weeks later, with the prospect of further revenue declines, Enterprise decided to close struggling branches, consolidate regional offices and dismiss hundreds of administrative and tech support staffers. "This was not easy for us to do," Mr. Farrell says. But "in the end it's better for our company and employees to make the difficult decisions today ... and ultimately protect the majority of jobs in the long term."

The recession and tighter credit markets prompted the first-ever layoffs at Life Time Fitness Inc. by derailing expansion plans. The Chanhassen, Minn., fitness-center operator has grown rapidly, to 81 centers in 18 states, from 45 centers three years ago.

This fall, though, Life Time Fitness scaled back its planned 2009 expansion to six club openings, from 11. In November, the company laid off 100 of its 15,000 employees, primarily architects, designers and real-estate developers, says spokesman Jason Thunstrom.

Gentex, which makes rear-view cameras and other gear for cars and airplanes, earlier this month dismissed about 370 employees, or roughly 15% of its staff, in its first layoffs. "This was a significant, emotional event," says Bruce Los, vice president of human resources. "We didn't even have a layoff policy."

Temporary Measure
In past downturns, Gentex, which has added more than 750 employees in the past five years, was smaller and more nimble, Mr. Los says. For months, executives tried to avoid layoffs by filling openings with temporary workers and moving employees to busy segments from those with little work. They also tried to keep employees occupied by bringing outsourced work in house and initiating improvements to facilities.

But a world-wide decline in car sales finally forced the company's hand. In the third quarter, sales fell 6% and profit dropped 49%. The company shut its graveyard shift and laid off most of those employees, from project managers to maintenance workers.

Other parts makers have cut back, too. Employment at part makers fell 12% in October, compared with a year earlier. "There are forces at work globally that go far beyond what's happening here in Zeeland," Mr. Los says.

Write to Cari Tuna at cari.tuna@wsj.com