Friday, March 11, 2005

Visteon aims to spin off ailing units

Ford may run new company; 5 troubled plants are in Michigan, with 9,200 workers.

By Eric Mayne / The Detroit News

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Visteon Corp. and former parent Ford Motor Co. are exploring the formation of a new holding company that comprises the auto parts maker's weaker operations as part of a broad restructuring of Visteon.

The new company managed and controlled by Ford would take over troubled Visteon operations such as chassis components and glass, and free the parts maker to focus on profitable lines such as climate control and interiors, according to people familiar with the talks.

Some of the ailing Visteon operations that could end up in the new limited liability company include plants in Sterling Heights, Ypsilanti, Ypsilanti Township, Milan and Monroe that employ about 9,200 workers.

While Ford and Visteon work through the details of the restructuring, the companies announced a financial arrangement Thursday to keep the struggling parts maker afloat. Visteon has lost $2.7 billion in the past two years and has not posted an annual profit since it was spun off from Ford in 2000.

Under the agreement outlined in a filing with the U.S. Securities and Exchange Commission, Ford will provide Visteon with at least $400 million in financial relief over several years.

Visteon now reimburses Ford for the cost of the 17,700 hourly workers who are still technically on Ford's payroll. But the automaker agreed to reduce Visteon's monthly payments for the labor by $25 million a month "at least through the end of 2005."

And Visteon won't be obligated to reimburse Ford for any profit-sharing payments to UAW hourly workers earned in 2005 and payable in 2006.

The automaker also agreed to purchase about $150 million worth of new factory equipment to allow Visteon to build parts for Ford. In addition, Ford will accelerate payments to Visteon for parts to within 26 days from about 33.

Ford said the financial bailout "is in the best interests" of the automaker and "designed to ensure Visteon will be able to maintain a constant flow of components" to the automaker.

"We are working with Visteon to ensure that commitments between us, our customers, our employees, our suppliers, and unions continue to be satisfied. While there are numerous details left to be worked out, we are making progress," the company said in a statement.

Visteon CEO Michael Johnston called the agreement "the right step forward" and said it "will improve Visteon's operating results and cash flow."

The financial moves could ease Visteon's cash crunch, but the possible formation of the new corporation comprising its sickest operations is seen as a longer-term fix.

It is unclear what impact the new company would have on Visteon's 80,000 employees, including 20,000 in Michigan. Under an agreement with the United Auto Workers, the 17,700 Ford workers at Visteon are paid about $25 an hour. That's roughly double the $10 to $14 an hour paid to workers at parts suppliers such as Johnson Controls.

Visteon wants to transfer as many of those employees as it can back to Ford. The company can pay starting wages of $14 an hour to new hires under a separate pact with UAW.

The UAW International declined comment on the negotiations but local union leaders said workers were anxious for a resolution.

"It's more frustration than anything," said Paul Haver, president of UAW Local 845, which represents workers at Visteon's Sheldon Road plant in Plymouth. "The morale is down because of the uncertainty that we're facing."

Johnston said talks with Ford are "progressing positively" and "other than our conversations with Ford, we are not in active discussions with anyone else."

Ford and Visteon executives resumed a new round of talks in October aimed at restoring profits and stabilizing the auto parts maker. Production cuts at Ford, high commodity prices, high wages, steep health care obligations, and high debt have undermined Visteon's financial performance.

Visteon's credit rating and share price have taken a beating. The company's shares rose 3 cents to $6.26 in New York Stock Exchange trading Thursday.

Since the talks began, analysts have speculated that Ford would eventually take back several uncompetitive Visteon plants and sell them to another supplier.

Visteon is under enormous pressure to exit the talks with a viable business plan.

It is withholding earnings guidance until the negotiations with Ford have concluded. Johnston hopes to complete the talks before March 31.

The negotiations mark the third time since December 2004 that Visteon has sought financial aid from Ford, its largest customer. To date, Ford has spent about $1.6 billion to help Visteon.

"Ford still depends on Visteon for a lot of critical parts and they had to bail them out," David Healy, an analyst with Burnham Securities in Sierra Vista, Arizona, said in an interview.

The latest restructuring moves could eventually cost Ford $2 billion, according to one Wall Street analyst.

"The most likely scenario for Visteon is that Ford will subsidize a restructuring of the company," Deutsche Bank's Rod Lache wrote in a research note published this week.

Lache said the restructuring would likely resemble a recent deal between Metaldyne Corp. and DaimlerChrysler AG. Last year, Plymouth-based Metaldyne -- a supplier of chassis and powertrain components -- purchased a New Castle, Ind., machining and forging plant from Chrysler.

To help Metaldyne maintain competitive labor costs after the sale, Chrysler workers were offered three options: $70,000 to workers with 30 or more years of service to retire immediately with full company benefits; $25,000 to workers who relocated to another Chrysler plant; or $100,000 to forgo current wages and accept lower pay of $16-per-hour, a cut of $9 an hour.

Bloomberg News contributed to this report. You can reach Eric Mayne at (313) 222-2443 or emayne@detnews.com.