“Four-day week has immediate impact”
Since June 1, Scania has applied a four-day work week in Sweden due to continued weak demand. This measure is having an immediate positive impact on earnings and cash flow, says Jan Ytterberg, Executive Vice President and CFO.
TEXT: GÖRAN LIND
“All employees in Sweden are getting one day off per work week, and Scania is paying for half the resulting income loss. Their working hours are 20 percent less and pay is 10 percent less,” Ytterberg explains.
The reason behind this step is a sharp decline in demand. Due to the global recession, vehicle deliveries are at a very low level and there is a lower demand for services. As a result, Scania has to adjust the cost level and the alternative would have been to issue lay-off notices. But the four-day week has many advantages, even aside from enabling employees to keep their jobs.
“The positive effects of issuing lay-off notices on earnings and cash flow materialise only after six to nine months. Now there is a more or less immediate impact as of June,” Ytterberg says. Reduced working hours affect a total of 12,000 employees and will lower Scania’s costs this year by more than SEK 300 m.
The four-day week applies in principle to all employees in Sweden, which means that even Leif Östling, President and CEO, has a reduced salary and working hours.
Scania had already introduced various forms of working hour reductions for more than 2,000 employees in the Netherlands, France, Germany and elsewhere. Choosing to reduce working hours instead of laying off employees is also consistent with Scania’s long-term strategy of preserving and improving its core competency.
“The long-term problem is not a labour surplus, but a shortage of trained employees, which is why this measure will be positive for Scania’s earnings in the long term as well. We can respond more quickly once demand increases again. Retaining and improving the skills of employees will also strengthen Scania’s long-term competitiveness,” Ytterberg says.
Support from the employees
But it would not have been possible to implement the four-day week without the support of the company’s employees. In May, Scania’s Executive Board reached agreements with the Swedish Metal Workers’ Union and the other Swedish unions at Scania − Unionen, the Swedish Organisation for Managers (Ledarna) and the Swedish Association of Graduate Engineers − on reduced working hours, after their members had voted in favour.
“The measure means personal sacrifices by employees. In spite of this, there was broad acceptance for the four-day week, which shows that there is support for the company’s strategy of dealing with the very sharp decline in demand with this measure,” the CFO says. At the same time, Ytterberg points out that the four-day week is only one of numerous measures the company is undertaking to lower costs and improve cash flow.
Since the truck industry is highly cyclical, Scania has created a flexible system for responding to downturns and upturns in demand. Among other things, Scania has had 2,000 production employees with fixed-term temporary contracts and they have now left the company. At the same time, Scania is taking steps to adjust the entire cost level in the company, from research and development to the sales organisation. The measures went into effect during the first six months and contributed to Scania’s net income of roughly zero despite a strong decline in deliveries.
“Cash flow is a top priority right now. One important factor has been to reduce the inventory of new trucks, which we succeeded in doing during the first half of the year. Cash flow in Vehicles and Services amounted to around SEK 1,900 m, which has strengthened our financial position,” says Jan Ytterberg.