Bad News For Ford Supplier
10/31/04, 05:33 AM
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Link : http://www.detnews.com/2004/autosinsider/0.../a01-320551.htm
Sunday, October 31, 2004
Visteon plans major cutbacks
The automotive supplier is in talks with Ford to sell plants, cut products and transfer workers
By Eric Mayne / The Detroit News
Crisis at Visteon
Automotive supplier Visteon Corp., faced with alarming financial losses and a deteriorating outlook, is preparing a series of painful downsizing moves that are likely to affect thousands of employees, including many of its 21,000 workers in southeast Michigan.
The giant auto parts supplier is in intensive talks with former parent and main customer Ford Motor Co. about selling or closing several unprofitable factories, cutting a portion of its 8,500 U.S. salaried employees and accelerating the transfer of factory workers back to Ford, according to sources with both companies.
It could take weeks or even months to work out the details of the plan to create a smaller and more competitive Visteon, which has floundered since it separated from Ford more than four years ago.
Mike Johnston, 57, who took over as Visteon's CEO July 1, promised an "aggressive" restructuring after the Van Buren Township-based supplier posted a crushing $1.36 million loss in the third quarter that ended in September.
The second-largest U.S. supplier, with $18 billion in worldwide sales, also has alarmed Wall Street by refusing to estimate how much money it will lose this year or project earnings for next year, citing uncertain market conditions and the outcome of the Ford talks.
Visteon is studying the future of several U.S. plants, including two in Indiana and five in Michigan. The local plants, which employ 9,200 workers, are in Sterling Heights, Ypsilanti, Ypsilanti Township, Milan and Monroe.
Just 10 months ago, Visteon Chairman and then-CEO Pete Pestillo promised 2004 would be a "defining year" for the company and projected a modest profit. But Visteon was waylaid by a combination of factors, including rising steel prices, over-optimistic projections and significant production cuts by Ford.
As losses mounted, so did tensions between Ford and Visteon. Over the past two weeks, senior executives on both sides have met frequently to craft a new turnaround plan for Visteon. Ford executives have told Visteon officials that the automaker will no longer accept uncompetitive prices on parts and components, forcing Visteon to take new measures to lower costs.
"Obviously, a healthy Visteon is good for all of us in the industry and we will work very closely with them," Ford Chairman and CEO Bill Ford Jr. told reporters last month.
But there are no quick fixes. "You can't just magically make the losses disappear," Morgan Stanley analyst Stephen Girsky said.
One immediate issue: Visteon still has 18,000 Ford employees making an average wage of $25 an hour in its factories, a vestige of the 2000 spinoff. Both companies say they want to accelerate the transfer of those workers back to Ford, which then allows Visteon to hire new workers at about $14 an hour.
So far, only 750 Ford employees have transferred from Visteon back to the automaker this year. Visteon expects another 150 workers to return by year-end. Ford and Visteon also are dangling a $35,000 retirement incentive per eligible employee to shrink Visteon's hourly work force.
The ongoing review of Visteon's business is focusing three areas: the supplier's large and unprofitable chassis business, its long-struggling glass business and its lighting division, which continues to falter despite winning contracts to supply high-tech LED headlights for the new Chevrolet Corvette and some new Cadillac models.
Visteon took a $312 million third-quarter charge to write down the value of its steering column operations, part of the company's chassis division. The charge indicates the value of the business has dropped sharply.
"The company's outlook is tough," Merrill Lynch auto analyst John Casesa said after Visteon released its third-quarter earnings. "Restructuring discussions with Ford remain the biggest swing factor in evaluating Visteon's future."
Johnston told analysts this month the company is now limiting capital spending and investing in plants and product lines that offer the prospect of long-term growth. Visteon could sell its unprofitable plants to other suppliers, as long as the buyer wins a guarantee that Ford will continue buying parts. Ford may take back one Visteon plant if necessary to complete the deal, according to people familiar with the talks.
"Ford is left holding the bag here," said Casesa, adding Wall Street would react with "great surprise and disappointment" if the automaker reacquired any plants.
Since early August, when Visteon shares reached $10.47, investors have beaten the company's stock price down 32 percent. Visteon shares closed Friday at $7.11 in New York Stock Exchange trading.
Late last year, Ford and Visteon negotiated a bailout plan that called for the automaker to assume $1.65 billion in future retiree benefits and other obligations from Visteon. The move was designed to free up cash that Visteon could invest in new product development. Ford also agreed to rehire Visteon workers.
In return, Visteon agreed to give Ford preferential pricing on some parts contracts. But after Ford announced fourth-quarter production cuts and Visteon reported the third-quarter loss of $1.36 billion, the two companies launched a new round of talks.
Numerous setbacks
Close observers believe the seeds for Visteon's current problems were sown in 2000 when Ford hastily spun off its long-time parts division. Visteon hourly workers were guaranteed top-tier UAW wages and benefits that cost the company about $50 hour - nearly twice what some competing suppliers pay. The labor costs and Visteon's broad array of products have made it difficult for it to offer world-class quality and cost in any area.
At the same time, Ford went into the tank shortly after the spinoff, losing billions of dollars and large chunks of market share. Since Visteon supplies roughly $3,000 in content per Ford vehicle, the automaker's sales performance has an acute impact on its largest supplier.
"Ford's market share has gone down by about five or six points since the spinoff," Girsky said. "The volume's gone down by a million units. When they spun off Visteon, they spun off a company that was in a position to grow. It was not in a position to shrink."
While Visteon's non-Ford revenues have climbed 37 percent to $4.21 billion this year, sales to Ford have slumped by $286 million. The automaker still accounts for 72 percent of Visteon's annual sales, leaving it vulnerable to swings in Ford's production plans.
"Right out of the gate, they had to start shrinking," Girsky said. "It's not that easy to shrink in this business."
The latest talks have created another wave of uncertainty for Visteon workers. "People are nervous, but we're very optimistic," said Ralph Mayer, president of UAW Local 898, which represents 2,120 hourly workers at the Ypsilanti Township factory that produces alternators and fuel injectors, part of Visteon's unprofitable chassis business.
The troubled plants should be attractive to buyers, said Neil de Koker, president of the Troy-based Original Equipment Suppliers Association.
"There are competitors to Visteon in those areas that would likely see it as an opportunity to grow in an area of expertise," de Koker said.
And analysts say Visteon's chassis business includes profitable products, including a collapsible driveshaft that provides safety benefits during collisions. Ford uses the driveshaft in its new 2005 Mustang.
But the chassis, steering, lighting and glass businesses include many parts that have become commodities that can be produced for less money by suppliers who pay lower wages and build in low-cost countries such as China and Mexico.
"Many of these products should be produced at other places by companies who view them as 'core,' by companies who have invested in the technology," Casesa said.
A governance committee is overseeing the Visteon-Ford negotiations. Johnston has identified the company's climate control, interior and electronics operations as strategic growth opportunities. The three product groups account for 52 percent of the company's business and are enjoying greater acceptance by Ford and other automakers.
To cut costs, Visteon is also weighing a compressed work week, a move first discussed during the national labor talks with the UAW in 2003. Employees would work four 10-hour shifts per week, eliminating the need to run plants for a fifth day.
"We would discuss it," said Paul Haver, president of UAW Local 845 in Plymouth, which represents workers at Visteon's Sheldon Road.
While senior UAW leaders are not involved directly with the talks, they are expected to approve any plant sale or closing.
Pestillo, the former Ford labor chief who engineered the Visteon spin-off, has not taken an active role in the talks, according to people close to the matter. Pestillo stepped down as Visteon CEO earlier this year and will retire as chairman in 2005. Now his successor, Johnston, is faced with making the toughest decisions in Visteon's short and rocky life.
"You have two issues here: plants and people," Casesa said.
"You can always find someone to operate these plants, in the right conditions. The question is how many people do you need and what will you pay them?"
You can reach Eric Mayne at (313) 222-2443 or emayne@detnews.com.
Sunday, October 31, 2004
Visteon plans major cutbacks
The automotive supplier is in talks with Ford to sell plants, cut products and transfer workers
By Eric Mayne / The Detroit News
Crisis at Visteon
Automotive supplier Visteon Corp., faced with alarming financial losses and a deteriorating outlook, is preparing a series of painful downsizing moves that are likely to affect thousands of employees, including many of its 21,000 workers in southeast Michigan.
The giant auto parts supplier is in intensive talks with former parent and main customer Ford Motor Co. about selling or closing several unprofitable factories, cutting a portion of its 8,500 U.S. salaried employees and accelerating the transfer of factory workers back to Ford, according to sources with both companies.
It could take weeks or even months to work out the details of the plan to create a smaller and more competitive Visteon, which has floundered since it separated from Ford more than four years ago.
Mike Johnston, 57, who took over as Visteon's CEO July 1, promised an "aggressive" restructuring after the Van Buren Township-based supplier posted a crushing $1.36 million loss in the third quarter that ended in September.
The second-largest U.S. supplier, with $18 billion in worldwide sales, also has alarmed Wall Street by refusing to estimate how much money it will lose this year or project earnings for next year, citing uncertain market conditions and the outcome of the Ford talks.
Visteon is studying the future of several U.S. plants, including two in Indiana and five in Michigan. The local plants, which employ 9,200 workers, are in Sterling Heights, Ypsilanti, Ypsilanti Township, Milan and Monroe.
Just 10 months ago, Visteon Chairman and then-CEO Pete Pestillo promised 2004 would be a "defining year" for the company and projected a modest profit. But Visteon was waylaid by a combination of factors, including rising steel prices, over-optimistic projections and significant production cuts by Ford.
As losses mounted, so did tensions between Ford and Visteon. Over the past two weeks, senior executives on both sides have met frequently to craft a new turnaround plan for Visteon. Ford executives have told Visteon officials that the automaker will no longer accept uncompetitive prices on parts and components, forcing Visteon to take new measures to lower costs.
"Obviously, a healthy Visteon is good for all of us in the industry and we will work very closely with them," Ford Chairman and CEO Bill Ford Jr. told reporters last month.
But there are no quick fixes. "You can't just magically make the losses disappear," Morgan Stanley analyst Stephen Girsky said.
One immediate issue: Visteon still has 18,000 Ford employees making an average wage of $25 an hour in its factories, a vestige of the 2000 spinoff. Both companies say they want to accelerate the transfer of those workers back to Ford, which then allows Visteon to hire new workers at about $14 an hour.
So far, only 750 Ford employees have transferred from Visteon back to the automaker this year. Visteon expects another 150 workers to return by year-end. Ford and Visteon also are dangling a $35,000 retirement incentive per eligible employee to shrink Visteon's hourly work force.
The ongoing review of Visteon's business is focusing three areas: the supplier's large and unprofitable chassis business, its long-struggling glass business and its lighting division, which continues to falter despite winning contracts to supply high-tech LED headlights for the new Chevrolet Corvette and some new Cadillac models.
Visteon took a $312 million third-quarter charge to write down the value of its steering column operations, part of the company's chassis division. The charge indicates the value of the business has dropped sharply.
"The company's outlook is tough," Merrill Lynch auto analyst John Casesa said after Visteon released its third-quarter earnings. "Restructuring discussions with Ford remain the biggest swing factor in evaluating Visteon's future."
Johnston told analysts this month the company is now limiting capital spending and investing in plants and product lines that offer the prospect of long-term growth. Visteon could sell its unprofitable plants to other suppliers, as long as the buyer wins a guarantee that Ford will continue buying parts. Ford may take back one Visteon plant if necessary to complete the deal, according to people familiar with the talks.
"Ford is left holding the bag here," said Casesa, adding Wall Street would react with "great surprise and disappointment" if the automaker reacquired any plants.
Since early August, when Visteon shares reached $10.47, investors have beaten the company's stock price down 32 percent. Visteon shares closed Friday at $7.11 in New York Stock Exchange trading.
Late last year, Ford and Visteon negotiated a bailout plan that called for the automaker to assume $1.65 billion in future retiree benefits and other obligations from Visteon. The move was designed to free up cash that Visteon could invest in new product development. Ford also agreed to rehire Visteon workers.
In return, Visteon agreed to give Ford preferential pricing on some parts contracts. But after Ford announced fourth-quarter production cuts and Visteon reported the third-quarter loss of $1.36 billion, the two companies launched a new round of talks.
Numerous setbacks
Close observers believe the seeds for Visteon's current problems were sown in 2000 when Ford hastily spun off its long-time parts division. Visteon hourly workers were guaranteed top-tier UAW wages and benefits that cost the company about $50 hour - nearly twice what some competing suppliers pay. The labor costs and Visteon's broad array of products have made it difficult for it to offer world-class quality and cost in any area.
At the same time, Ford went into the tank shortly after the spinoff, losing billions of dollars and large chunks of market share. Since Visteon supplies roughly $3,000 in content per Ford vehicle, the automaker's sales performance has an acute impact on its largest supplier.
"Ford's market share has gone down by about five or six points since the spinoff," Girsky said. "The volume's gone down by a million units. When they spun off Visteon, they spun off a company that was in a position to grow. It was not in a position to shrink."
While Visteon's non-Ford revenues have climbed 37 percent to $4.21 billion this year, sales to Ford have slumped by $286 million. The automaker still accounts for 72 percent of Visteon's annual sales, leaving it vulnerable to swings in Ford's production plans.
"Right out of the gate, they had to start shrinking," Girsky said. "It's not that easy to shrink in this business."
The latest talks have created another wave of uncertainty for Visteon workers. "People are nervous, but we're very optimistic," said Ralph Mayer, president of UAW Local 898, which represents 2,120 hourly workers at the Ypsilanti Township factory that produces alternators and fuel injectors, part of Visteon's unprofitable chassis business.
The troubled plants should be attractive to buyers, said Neil de Koker, president of the Troy-based Original Equipment Suppliers Association.
"There are competitors to Visteon in those areas that would likely see it as an opportunity to grow in an area of expertise," de Koker said.
And analysts say Visteon's chassis business includes profitable products, including a collapsible driveshaft that provides safety benefits during collisions. Ford uses the driveshaft in its new 2005 Mustang.
But the chassis, steering, lighting and glass businesses include many parts that have become commodities that can be produced for less money by suppliers who pay lower wages and build in low-cost countries such as China and Mexico.
"Many of these products should be produced at other places by companies who view them as 'core,' by companies who have invested in the technology," Casesa said.
A governance committee is overseeing the Visteon-Ford negotiations. Johnston has identified the company's climate control, interior and electronics operations as strategic growth opportunities. The three product groups account for 52 percent of the company's business and are enjoying greater acceptance by Ford and other automakers.
To cut costs, Visteon is also weighing a compressed work week, a move first discussed during the national labor talks with the UAW in 2003. Employees would work four 10-hour shifts per week, eliminating the need to run plants for a fifth day.
"We would discuss it," said Paul Haver, president of UAW Local 845 in Plymouth, which represents workers at Visteon's Sheldon Road.
While senior UAW leaders are not involved directly with the talks, they are expected to approve any plant sale or closing.
Pestillo, the former Ford labor chief who engineered the Visteon spin-off, has not taken an active role in the talks, according to people close to the matter. Pestillo stepped down as Visteon CEO earlier this year and will retire as chairman in 2005. Now his successor, Johnston, is faced with making the toughest decisions in Visteon's short and rocky life.
"You have two issues here: plants and people," Casesa said.
"You can always find someone to operate these plants, in the right conditions. The question is how many people do you need and what will you pay them?"
You can reach Eric Mayne at (313) 222-2443 or emayne@detnews.com.
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