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Cummins Slashes CEO and Worker Salaries as Key Customer PACCAR Shuts Production

By Neha Chamaria - Apr 3, 2020 at 12:24PM

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Cummins will pay its CEO and workers less as COVID-19 pandemic forces PACCAR and other customers to suspend production.

Cummins (CMI -0.24%) is taking drastic measures as the COVID-19 pandemic continues to spread, hitting global trade and economies. In its latest update, the engines manufacturer announced a slew of actions to "lower costs," all of which relate to the compensation it pays to management and workers.

Cummins' moves come at a time when several of its customers, including its largest customer, PACCAR (PCAR -0.32%) have extended factory shut downs worldwide.

Coronavirus is hitting Cummins hard

"The impact from the pandemic on the global economy has been sudden and is growing, and it is imperative for us to respond quickly to maintain our strong financial position," said CEO Tom Linebarger.

In response, Cummins announced three levels of salary cuts:

  • A 50% cut in the CEO's salary.
  • A 25% cut in director compensation.
  • A 10%-25% cut in salaries for all other employees in the U.S.

Cummins is also cutting down working hours, perhaps because of a slump in demand as the truck manufacturing industry, like many others, has come to a standstill.

A lock and closed sign on a factory metal gate.

Coronavirus is hitting Cummins hard as key customers have shut factories. Image source: Getty Images.

PACCAR, which contributed 17% to Cummins' net sales in 2019 and is its largest customer, has suspended production at its factories worldwide until April 20, 2020, extending the date from the previous April 6. PACCAR is known for its Peterbilt, Kenworth, and DAF-brand trucks. Cummins has long-term supply agreements, particularly for mid- and- heavy-duty engines, with PACCAR.

In its statement, PACCAR said it will continue to review "future actions" regularly and release its first-quarter earnings on April 21.

On March 20, Cummins suspended production at a plant in Walesboro, Ind., for two weeks after Fiat Chrysler Automobiles (FCAU), also a Cummins customer, shut down its pick-up truck factory in the wake of the coronavirus lockdown.

The European auto industry has been among the worst-hit globally, and it's just one of the reasons why Cummins also withdrew its financial guidance for 2020 last month. In February, Cummins projected 2020 revenue to decline by 8% to 12%. Cummins is expected to announce its first-quarter earnings on April 28.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares of Paccar. The Motley Fool recommends Cummins. The Motley Fool has a disclosure policy.

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PACCAR Inc Stock Quote
$91.30 (-0.32%) $0.29
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