Ford Bails Out Parts Firm
Auto parts maker Visteon Corp. said Wednesday that former parent Ford Motor Co. agreed to take over 24 plants, bailing out its largest supplier for the third time in 17 months.
Taking back the plants will cost Ford about $1.2 billion, including as much as $650 million this year, the Dearborn, Mich.-based carmaker said. Ford will put the plants and its 17,400 workers in a holding company for possible sale. Ford plans to cut about 5,000 of those workers over the next four years.
Shedding plants may help Van Buren, Mich.-based Visteon stave off a bankruptcy filing after losing 95% of its net worth since its 2000 spinoff from Ford. For Ford, the agreement prolongs the survival of its biggest source of parts as its own sales are shrinking and auto operations are losing money.
“It was either this or Chapter 11” for Visteon, said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.
The agreement allows Visteon to eliminate Ford employees that cost the parts maker about double what hourly workers at rival suppliers are paid. The employees, who have been at Visteon since the spinoff, are paid by Ford, with Visteon reimbursing the automaker.
Visteon shares rose 90 cents, or 14%, to $7.17. Ford shares fell 2 cents to $9.96.
Visteon, which hasn’t had an annual profit since the year it became an independent company, said the transaction would cost it $1.3 billion this quarter, mainly accounting items.
After the agreement is completed, Ford will account for 50% of Visteon’s revenue, down from 70% last year, Visteon Chief Executive Michael Johnston said.
Ford agreed in December 2003 and again in March to provide financial aid to Visteon, in part to maintain a steady supply of parts in North America. Visteon’s products include interiors, chassis components and steering and electronic parts.
The transaction will enable Ford to “maintain a key part of our supply base as it’s being restructured,” Chief Financial Officer Don Leclair said. Ford will look for buyers for the plants, he said.
Leclair said the transaction would cut Ford’s pretax profit by about $125 million in the fourth quarter and as much as $350 million in 2006.
After the operations are sold or restructured, pretax profit will increase by as much as $700 million in 2010 because purchase costs will be lower, he said. Cutting workers will cost about $300 million to $500 million.
Ford said it would also pay Visteon as much as $550 million for restructuring expenses and extend a $250-million loan, which will be used by Visteon to repay debt. Visteon said it would repay the Ford loan after the transaction was completed.
Ford will pay $300 million for inventory at the 24 affected plants. Visteon will issue to Ford warrants to purchase 25 million shares of Visteon stock at $6.90 a share.
Wednesday’s agreement, besides being subject to a United Auto Workers vote, needs regulatory approval.
The companies said they expected to sign a final agreement before Aug. 1 and complete the transaction at the end of the third quarter.
