JCB: crunch time?

Two days, and two days about JCB. The first blog came before the details of the latest ultimatum emerged. And what do you make of them?

If you missed the details here they are: either the company's reduces its working hours and lose 180 jobs, or do nothing and lose up to 500 jobs.

It's a tough choice: certainly not one I'd like to make.

But it would appear to be sound thinking from a solid manufacturing company, although the manner of the announcement raises some worries.

JCB has previously made two years of successive record profits. That, and and given the firm's previous track record of ploughing a hefty percentage of its profits into research and you've got a sound basis for a company which needs to stand on new products.

If you consider what's happened in the global economy then it wasn't surprising that the company has been forced to cut back staffing to meet a slackening in demand levels. What's been surprising, however, is the means by which the company has brought about the change.

During the summer, JCB warned that up to 700 jobs could go and put staff on notice for redundancy consultations. Given the numbers that has to be a compulsory 90 days to allow staff, the company and staff representatives to consider alternatives to compulsory redundancy such as redeployment elsewhere within the business and voluntary redundancies.

No sooner did that consultation period finish, than JCB bosses warn that another 500 jobs could go if workers don't accept a reduction in working hours.

One stockbroker always told me to remember that all companies will get into trouble, but the best will roll with the punch, take swift corrective action, and then bounce back. Otherwise you risk getting into a vicious circle of making job cuts, not doing enough to get the business back on track, and then being faced to make more cuts because the original cuts did nothing to get the company out of trouble. That's what did for Royal Doulton, after all.

That's not to suggest that's the path that JCB are going down, not for one second. It's just that when you compare this to the last time JCB had to make such a cut, after the 2001 foot & mouth outbreak, that the cuts then were swift and corrective. And after that the company bounced to become the world's third largest construction vehicle manufacturer - by turnover - and turn in two years of consecutive record profits.

However, a second round of substantial job cuts and a reduction in working hours so soon after 700 job cuts suggests that the bosses failed to pick up just how big the cuts would be.

Of course, few could have predicted that the credit crunch, which first inflicted its first wave of catastrophe back in August 2007, would still be causing banks to fail and investors to suffer the rockiest correction in stock and property markets since the crash of 1929.