DETROIT - Ford Motor Co. is reviewing the prices it pays for parts from its Visteon Automotive Systems unit. The process is delicate because Visteon is preparing to spin off from its corporate parent this year.
Analysts say Ford wants the lowest prices possible but can't cut too much or it will risk harming Visteon's future financial picture.
A similar 'competitive price review' was done three years ago and resulted in $500 million in give-backs to the automaker. This review will wrap up in the first quarter and Ford expects Visteon 'will be reducing prices,' a Ford official said. Analysts say the cuts likely will be substantial.
The price review is creating some conflict between the automaker and its $19 billion-revenue parts supplier, auto insiders say. A Visteon spokesman acknowledged some tension but said the review was necessary to ensure Visteon was competitive before departing Ford.
'I guess there is a little bit of tension,' said Kent Niederhofer, Visteon manager of investor relations. 'Yes. Ford is in a position where it can cut prices on one part where it thinks we are too high, but in some other area where we are below competitors, it's not like they are going to increase prices for us there.
'Both sides negotiate at arm's length. There is incentive on both sides to get what they can. Visteon feels it is negotiating the best price it can. Given that it has been two years since the last review, we think it makes sense to take a second look.'
Analysts say the price review, mentioned by Ford in its recent quarterly earnings statement, could push back an initial public offering for Visteon until the third quarter of the year. Ford will say only that it wants independence for Visteon this year.
'Ford is walking a fine line of pushing ahead on its investment case versus Visteon's sell-off case,' said David Andrea, chief economist for CSM Worldwide, an auto consulting firm in Northville, Mich. 'They are playing both sides and have to do this review delicately.'
The review essentially is a comparison of the prices Visteon charges for the 100-plus product lines it supplies to Ford with the prices charged by competing suppliers.
Any price cuts affect only current Visteon parts contracts to Ford, though contracts often have several years remaining. The cuts would not affect future Ford contracts or parts supplied to non-Ford customers, a Ford spokesperson said.