James Orchard, Visteon Corporation’s president for North America and Asia, has urged vehicle makers and the supply industry to ‘reinstall integrity in the competitive process’ so as to stop stock marker analysts ‘trashing the automotive industry in the United States’. Stephen Downer caught up with him in Mexico City, heard his views about the state of the North American auto industry and talked to him about Visteon’s Mexican strategy.

In a speech in Mexico City during the PAACE Automechanika Mexico show in mid-July, Orchard listed many of the ills that, in his opinion, had damaged the automotive industry over the past decade. He posed the question: “Why, in a US market of 16 million vehicles per year, are we struggling so badly?”

Unwise alliances
Many of the problems, he said, had been a result of unwise alliances. “We bought companies that we didn’t know about, that were outside our expertise.” He added: “In the past few weeks I’ve been hearing more again about this being the perfect time for consolidation. Unfortunately, again this is more for financial reasons. Let’s do collaboration and consolidation correctly and for the right reasons. If we do, I think we’ll all be better off in the future.”

According to Orchard, “integration” and “synergies” were “two of the most over used and under delivered words in the English language” in an era when consolidation and new alliances were in fashion.

“The difficulty with these strategies was that some looked like six-month initiatives.” Few of the top suppliers “navigated the changing OEM (vehicle maker) base well and it was hard to guide your own strategy when your customer base was in a state of flux. This lasted for several years.”

He added that there had been “a relentless pursuit of costs and not a pursuit of values. Quality is not as good as it should be and is not moving along as fast as it should be. In many cases the integrity of this competitive process was compromised as well.”

Property rights, for example, had been violated, while changes in the terms and conditions of contracts had been made retroactively. “All this means that about 40% of our supply base is very close to financial distress and very close to bankruptcy. And the OEMs (vehicle makers) do need a healthy supply base to survive and many of them acknowledge this but it’s very tough to see this in practice.”

Orchard said that the vehicle makers “must allow suppliers to have a proper return on investment so that we can invest much more easily and satisfy the OEMs. And we, the tier one suppliers, must let the tier two suppliers have a proper return on their investment”

“We need to reinstall integrity in this process and respect each other’s investment.”

By doing that, “maybe those analysts will stop trashing the automotive industry in the United States… It’s still a very viable business. It’s a large part of our economy and our way of life. We will work very hard to make it stay that way.”

A little bit fat, a little bit arrogant
It was easy for the suppliers to blame the vehicle manufacturers “for all our major problems. (But) we have caused many problems ourselves. In the era of scale, we all felt we had to be number one or two. We got a little bit fat, a little bit arrogant.”

However, Orchard assured his audience that in the next 10 years, especially in North America, the vehicle makers would be more focused. “A lot of products and variations are coming. There will be a lot opportunities. As suppliers, we need to get back to focusing on innovation and getting the waste out of our system.”

Visteon, whose headquarters are in Dearborn, Michigan, operates 15 factories in Mexico, representing an investment of US$100 million and accounting for 20% of the corporation’s global production, according to Orchard

Mexico’s not cheap any more
“US$2.4 billion, or 13% of our total revenue, come from Mexico and 15% of Visteon’s 77,000 employees are in Mexico. But in Mexico it’s not just cheap labour any more. It has not been that way for some time,” he said in an interview with just-auto’s Stephen Downer.

He said the company’s Mexican facilities, which produced plastic, air conditioning, power train and security system components, as well as audio and multimedia systems and glass products, had developed “competency and expertise. So we will use them as islands of excellence in our global business.”

Asked whether Visteon, which has 31 product lines in seven segments, would move some production to the cheaper labour markets of China, Orchard replied: “I’m aware of the China factor. Some parts logically will go from Mexico to China but I see them being replaced by two things, parts for the after market and an increase in the value added. So the bottom line is that things will change (in Mexico) but in total revenue things will grow.”

Visteon, a three-year spin-off of Ford Motor Company, is an assembly plant supplier primarily. However, Orchard said sales to the aftermarket amounted to US$850 million of Visteon’s total of US$18.4 billion in sales in 2002. “We have no strategy to go into retail.”

New Mexican design centre
Two developments point to Visteon’s continued confidence in Mexico as a business base. In July it opened a US$25 million design centre in the city of Chihuahua, capital of the state of the same name, “to increase our design capability for automotive electrical systems, driver information systems and chassis components,” said Orchard. The chassis components include steering and suspension systems.

Most of the 90 engineers employed at the centre graduated from local universities. “We learned a long time ago that, if you invest in training and treat people fairly, they will be loyal and we’ve found over the years that people at Visteon in Mexico are loyal,” Orchard added.

HQ moved to Chihuahua
The other development is Visteon’s decision to move its headquarters to Chihuahua from Mexico City. Seven of Visteon’s plants in Mexico are in Chihuahua state. “Chihuahua will become our corporate governance centre,” said Orchard. “We’ve added purchasing, supplying, general management, etc.”
Visteon de México was established as a Visteon Corporation subsidiary in 1998. “Mexico is a two million vehicle manufacturing base, irrespective of how much is exported,” Orchard said, explaining the reason for Visteon’s strong presence in the country.

According to a Visteon spokesman, Visteon México’s main clients include Ford, Freightliner, General Motors, Honda, Isuzu, Mitsubishi, Mopar, Renault-Nissan and Volkswagen.