Visteon shareholders who took the stock when Ford sold it to the market five years ago have every reason to be furious. They bought a pup.
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Those who were there at the time will remember that the question was continually put: that if Visteon was lumbered with Ford’s UAW wage rates could it ever hope to compete internationally?
The reassurance came in many forms but the basic argument was that as a separate entity, Visteon would have the freedom to get rid of its loss-making product lines and invest heavily in the good stuff. And it would be able find loads of new customers because they would benefit from Ford volumes in the unit costs. Ford meanwhile would be free to shop elsewhere for the things Visteon ceased to make.
But this week’s events showed that the reassurance was hooey. Ford is still the buyer of 70% of Visteon’s output. And Visteon is still making chassis and powertrain components for Ford presumably because nobody else will at the price Ford is prepared to pay.
Visteon has never recorded significant profit since the day it went public. The shares have dived from over $US20 at the peak to $2 in recent weeks. The dividend never increased. Now Ford has taken back the troublesome manufacturing operations – 24 plants and just less than half ($8 billion) the revenue – under its own control and released Visteon from the crippling wage costs.
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By GlobalDataFord says that it will now do what Visteon did not do. It will clean up the companies and sell them on. But the buyers will not have to pay the workforce those uneconomic wage rates. They will pay what they can afford and Ford will top them up.
Visteon’s share price shot up. Rather mystifyingly – so did Ford’s. That seems more of a reaction to the probability of Visteon escaping Chapter 11 bankruptcy, and Ford avoiding interruption of component supply than a sensible appraisal of what happens next to Ford.
Can anyone really imagine that if there was a trade buyer for the knackered part of Visteon’s business, Visteon would not have found him already?
Don Leclair, the chief financial officer of Ford, was asked if he had tested the market for buyers. “No. But people have been contacting us and are very keen.”
Magna International, one of the few remaining confident auto component businesses, conceded guardedly to Bloomberg that they would “entertain a discussion”. In the way that these things are graded in the supply industry – that’s very keen.
The role of the UAW in all of this is a matter for conjecture. The official position is that they will consider the proposals for a week or two and let Ford know. In those circumstances, and in the absence of approval, Leclair did not want to stir things up by airing detail of his UAW discussions.
The only thing that could be guessed at from the answers to the probing was that the unions might have given up some entitlement on accrued holidays and possibly agreed some new practices. There was little indication that there was anything to come on wages and benefits.
Sadly everybody knows it. Without a serious shift to bring US labour rates in line with what the market will bear, this is just another shuffling of the pack. Whether it is Ford or its supplier that overpays for labour is immaterial. Either way the US auto industry is still surrendering.
Nobody will be more aware of that than the Visteon investors who subsidised the corporate experiment for five futile years.
Rob Golding
