Visteon supplies the older ULF Bluetooth stand-alone modules for the non-iDrive BMWs.

Ford to Take Back 24 Ailing Visteon Plants
Wednesday, May 25, 2005 9:54 PM EDT
The Associated Press
By DEE-ANN DURBIN

Auto supplier Visteon Corp., which has struggled to make a profit since it was spun off from Ford Motor Co. five years ago, said Wednesday that Ford would take back 24 ailing work sites and pay $550 million in restructuring costs as part of a deal that could eventually save the automaker millions on parts.

Visteon shares jumped on the news, while Ford shares slipped. The companies said they expect to sign a final agreement by Aug. 1.

Ford, the nation's second-biggest automaker, said it had agreed to manage a total of 20 plants in the United States and four in Mexico through a temporary business entity. Ford Chief Financial Officer Don LeClair said Ford will try to sell those plants by 2008 or 2009, adding that several companies have already expressed interest.

"Our first objective was to maintain the flow of parts and components," LeClair said. "Our second objective was to provide some finality here. Our goal is to approach a true arms-length relationship with Visteon."

Visteon spokesman Jim Fisher refused to say how many hourly and salaried employees work at the 24 plants.

Ford said the agreement could save it $600 million to $700 million by the end of the decade. But it expects to incur charges of $450 million to $650 million this year and $300 million to $500 million between 2005 and 2009 connected to the buyouts of about 5,000 hourly workers represented by the United Auto Workers at the 24 sites.

Ford spun off Visteon in 2000 and still makes up 70 percent of the supplier's business. Visteon is based outside Detroit in Van Buren Township.

Visteon Chief Executive Mike Johnston, who will become chairman of the company June 1, said the agreement will allow Visteon to concentrate on its most profitable businesses: climate systems, electronics and auto interiors. The plants Visteon is spinning off make glass, chassis, fuel tanks and other products.

Visteon has been saddled with expensive labor agreements and rising raw materials costs at the same time Ford has curtailed profits by cutting production. The two companies have been in talks since September to hammer out a deal that would allow Visteon to improve efficiency while still meeting its obligations to Dearborn-based Ford.

"This agreement removes an untenable burden," Johnston said. "We were unable to control our own destiny."

Merrill Lynch analyst John Casesa said in a research note Wednesday that when Ford spun off Visteon it forced the supplier to try to compete with wage levels that were too high. Casesa said the deal is a positive for Visteon but a negative for Ford.

"Ford is doing in one fell swoop what it should have done years before," he said.

Johnston said the agreement will transform Visteon from a company with $18 billion in revenue to one with $11 billion and will reduce the percentage of Ford business from 70 percent to 50 percent. Nissan Motor Co. and Hyundai Motor Co. are Visteon's two other biggest customers.

The agreement reduces the number of Visteon manufacturing plants in North America from 58 to 36 and cuts the average plant size in half, Johnston said. The company won't have any plants with more than 1,500 employees under the agreement; now it has six.

The average hourly wage at Visteon's plants will drop from $38 to $17, Johnston said, and the number of UAW-covered hourly employees will drop from 17,400 to 5,000 at the remaining 36 Visteon manufacturing plants.

Fifteen of the 24 plants are covered by UAW contracts. UAW leaders approved the restructuring plan Tuesday but it needs the approval of local members and regulators to go into effect. UAW members at the affected plants are scheduled to vote between May 31 and June 5.

The new holding company would lease salaried employees from Visteon and all UAW hourlies currently working in Visteon facilities. Ford said it will meet its salary obligations to UAW hourlies through the end of its contract with the UAW, which expires in 2007. If a buyer pays those employees less, Ford will make up the difference, LeClair said.

Johnston said the effect on salaried employees is not yet clear; Visteon will need to see how many salaried employees Ford wants to lease. But he made it clear the company isn't finished taking steps to become leaner.

The deal relieves Visteon of $2 billion worth of liability related to retirement obligations for Ford-UAW workers who were assigned to Visteon. Visteon also will get around $300 million for the inventory in the facilities that Ford is taking over.

LeClair said Ford doesn't regret spinning off Visteon but noted the automaker couldn't have predicted the changes it has seen in the business climate since then. Several auto suppliers have declared bankruptcy in recent months, and Visteon reported a net loss of $1.5 billion last year.

Visteon said once the deal is signed, it will issue warrants allowing Ford to buy up to 25 million shares of Visteon stock at $6.90 per share.

Visteon shares jumped 89 cents, or 14 percent, to close at $7.16 Wednesday on the New York Stock Exchange. Ford shares fell 1 cent to close at $9.97. Visteon shares have been trading in a 52-week range of $3.14 to $12.46, while Ford shares have traded between $9.07 and $16.48.

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On the Net:

Visteon Corp., www.visteon.com

Ford Motor Co., www.ford.com