When Visteon Corp. Chairman Peter Pestillo rang the New York Stock Exchange's opening bell June 29, he might have thought one of his biggest headaches was behind him.
A planned joint venture would put the majority of Visteon's troubled auto glass business in the hands of the United Kingdom's Pilkington PLC.
But the headache remains. Pilkington balked at the price, liabilities and future cost of employee contracts, and on Nov. 3 the two companies abandoned the deal.
Now Visteon must find another way to exit the glass business - a marginal operation in need of heavy investments and not central to the supplier's spinoff strategy.
No easy answers are apparent.
'It doesn't sound like anyone really wants to buy it, and they don't have the flexibility just to close it down,' said Greg Salchow, an analyst at Raymond James.
Labor costs may be the biggest hindrance.
Workers at the time of Visteon's spinoff from Ford Motor Co. last summer remain Ford employees for life, covered by a UAW master contract paying $45 to $50 an hour in wages and benefits, according to union officials. New employees get the same package for the duration of the current contract, which runs through 2003, plus two more contract periods, which guarantees glass workers a generous compensation structure through virtually the rest of this decade.
Visteon workers earn twice what Pilkington pays its union workers and three times the compensation to its nonunion workers, the glass company told the UAW.
Visteon acknowledges the challenges.
'Our labor arrangements (with wage differentials up to 20 percent to 40 percent higher than average competitors) place some limits on our ability to divest or restructure businesses in the near term,' Visteon strategists wrote in an August filing with the Securities and Exchange Commission.
Visteon leaders, though, maintain that glass making isn't in the company's long-term future. With 1999 sales of $773 million, the glass business represented 6 percent of Visteon's assets, 4 percent of total revenue - and, with a $3 million contribution, less than 0.5 percent of net income. The operation lost $15 million in 1998 and $25 million in 1997. Independence hasn't helped. The unit posted losses of $10 million through the first nine months of 2000 on $581 million in sales.
The company's glass facilities - which include four float furnaces at plants in Tulsa, Okla., and Nashville, Tenn., plus vehicle glass fabricating plants in Tulsa, Nashville and Juarez, Mexico - also require substantial upgrades, to the tune of $250 million, according to a recent estimate by Pestillo.
Visteon won't spend that kind of cash, but some investment in the business is possible, Goldman Sachs analyst Gary Lapidus said.
'I think Visteon is going to have to figure out a way to fix it up near term to make it more palatable for a buyer,' Lapidus said.
But Jerry Sullivan, president of UAW Local 600 in Dearborn, Mich., is doubtful. At a meeting with Pilkington and the UAW, Visteon officials told Pilkington leaders that they would put no more money in the glass unit, said Sullivan. The local represents about 1,200 Visteon workers, including 60 in the glass operation. The glass business employs 2,510 hourly and 528 salaried employees.
Those hourly glass workers would rather stay with Visteon, Sullivan said, and that means they may consider work practices to ensure that outcome.
'Based on what Visteon has said, it's up to us to try to sway that (divestiture) option, and if there's a way to do that, we ought to sit down and look at it,' Sullivan said. 'If they're dead-set on getting rid of the glass division because it's not a money maker, then how do we turn it around and make it a money maker?'
Such considerations may be among the options Visteon officials say they're exploring. With Pilkington out of the picture, the company also is likely to court other large glass makers. Segment leaders include Saint-Gobain Group of France, Asahi Glass Co. Ltd. of Japan and Guardian Industries Corp. of Auburn Hills, Mich.