Tuesday, August 23, 2005

Morris Richardson II / The Detroit News At Delphi, Robert S. Miller, a "semi-retired corporate drifter," has no qualms about rattling GM's cage.

Delphi, Visteon break with the old guard

Former units of GM, Ford hire chief executives from outside in bid to turn losses into profits.

By Jeremy W. Peters / New York Times

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DETROIT -- The men running two of the auto industry's largest and most troubled parts companies have one thing in common: both are relative outsiders to the corporate cultures they now inhabit.

Since the two companies, Delphi Corp. and Visteon Corp., first became independent, they were run by chief executives with close ties to their former parent corporations.

In Delphi's case, when General Motors Corp. spun it off in 1999, a career GM man took over. With Ford Motor Co.'s 2000 spinoff of Visteon, one of Ford's most senior executives became chief.

Now, Delphi and Visteon have chief executives without the ties to GM and Ford that many industry analysts have said were preventing the suppliers from becoming companies in their own right.

This is a new era and some analysts say they believe that brings new hope as the struggling companies try to turn their losses into profits.

At Delphi, whose situation is the more precarious, Robert S. Miller took over last month. In many ways, Miller is what Delphi's former chief executive, J.T. Battenberg, was not. A self-described "semi-retired corporate drifter" who is known for helping rehabilitate one troubled company after another, Miller has no qualms about rattling GM's cage.

"I do not have to spend very much time apologizing for how we got to where we are," Miller said in a recent telephone interview. "I have found the best way to do things you got to do is be honest."

On Aug. 8, as his company announced a $338 million second-quarter loss, Miller came out swinging, telling investors that if GM and the United Auto Workers union did not help Delphi address its high labor costs, it would consider filing for bankruptcy protection.

The next day, Delphi shares rose 46 cents, or 9 percent, to $5.49 a share.

Visteon is now run by Michael Johnston, who in June added chairman to his list of responsibilities. He was named chief executive last summer to replace Peter J. Pestillo, a former executive at Ford.

Unlike Pestillo, who spent the bulk of his career at Ford before becoming the Visteon's first chief, Johnston came from the outside. He is a former executive with Johnson Controls, the automotive supplier. A Visteon spokesman said Johnston was not available to comment..

Some analysts see Miller and Johnston as the best chance for Delphi and Visteon to break with the old guard.

"These were people who grew up inside those companies," Maryann Keller, an auto industry analyst, said of the former chiefs of Delphi and Visteon.

"They had to have a degree of loyalty to continually provide components at what would be a money losing proposition for them."

One of the main reasons why both suppliers have lost so much money -- $747 million for Delphi and $1.4 billion for Visteon -- this year alone is because GM and Ford have squeezed their suppliers into accepting lower prices for the parts they provide.

Playing hardball with your former boss is never easy, analysts point out.

"It's easier for outsiders to be hard-nosed with the former parents of these companies," John Casesa, an analyst with Merrill Lynch, said. "They're simply less bound by the fairly long, shared history."

With Johnston helping to lead negotiations, Visteon and the United Automobile Workers got Ford to agree in May to take back 24 unprofitable plants and offices in a deal that will cost the automaker as much as $1.15 billion over the next four years.

"The most important thing he did was getting Ford to agree to take back these horribly uncompetitive plants," said Joe Phillippi, the president of Auto Trends Consulting in New Jersey. "He's a guy that's got a broad-based understanding of how multiplant, multinational manufacturing businesses work."

Miller of Delphi has a similar battle ahead of him in dealing with GM, and analysts say that he is an ideal person for twisting GM's arm.

"Frankly, he's got all the ammunition," Keller said.

Miller said he believes being an outsider gives him certain advantages. "People are not used to the stress of a financial difficulty such as we're going through," he said. "That's where an outsider like myself, who's seen lots of trouble in lots of other companies, can be helpful."

Delphi has given GM until Oct. 17, the day new bankruptcy rules go into effect that pressure companies to spend less time in Chapter 11, to agree to provide it with some relief.

That relief could come in many forms, including a return of Delphi plants to GM or financial assistance to help cover the supplier's labor costs.

Miller said, "I believe we have a good shot at restructuring out of court. If we have to go to court, we'll do it. I've done it before."