Thank you, Dave. It's a pleasure to be here. I always look forward to the Automotive News World Congress and the Detroit Auto Show. While it's a lot of work getting ready for both of them, they symbolize the beginning of a new year.
I don't know about you, but I'm glad to have 2001 behind us. The result of the slowing economy and the terror and outrage of 9/11 made it, as Queen Elizabeth once said about a similar year, an "annus horriblis."
This year also promises to be tough as well.
It may take some time to pull out of the current funk. If you look at the last three recessions, it took the industry an average of three years to hit bottom in the United States and two years to recover to trend. Over the same 30-year period, Europe suffered through two recessions. It took an average of two years to get to the trough and an average of three years to return to trend.
While no one knows what shape this recession will take, we do know we have to prepare for both a U- and a V-shaped downturn. And under either one, sales volume in 2002 could fall below 15 million units. The good news is that if it's V-shaped, volume could jump back to trend - above 16 million - by 2003. If it's U-shaped, it will take another year or so.
To compound that uncertainty, margins in the auto industry are thin as Calista Flockhart. On the supplier side, it is increasingly difficult to stay world-class suppliers and provide innovations at these margins. Our ability to do that is critical to the future of the auto industry.
I'll keep my Visteon commercial short. We're implementing aggressive initiatives to get through this downturn and be poised to grow when things head north again. We have a strong balance sheet, but that's not enough. We have to continue to drive costs out of the system. We cut costs by about $600 million in 2001 and will have to match that again.
Capital spending last year was down and we'll have to hold the line in spite of launching many new products. We're also targeting a 10% year-over-year reduction in R&D, or about $100-million plus. Half of that will come from realigning resources to focus on growth businesses - and discontinuing work on products where the investments are huge and so far, not matched by revenues and margins. Half will come from continuous improvement and operating efficiencies.
We are concentrating on lean processes to reduce waste and increase flexibility. We will stay close to our customers through regional manufacturing and customer service centers.
We also are focusing on our supply network. We're implementing change through the $AVE program, which stands for Suppliers and Visteon Excel. This program encourages our suppliers to submit cost reduction ideas to us. Visteon, in turn, will share the savings. It's a win for us and for our suppliers.
Another way to reduce costs is consolidate our supply base. We are targeting to reduce our number from 2,500 suppliers to 500 over the next few years.
Our goal is to work with supplier partners that can help us be more efficient and provide product that helps our customers differentiate their vehicles. That differentiation opportunity is growing substantially as many of our customers move to multi-million-unit platforms that are the basis for all types of vehicles from Plain Jane to Top Hat models.
Many of those opportunities will be realized with systems and modules. These will have benefits beyond whether they meet the product specifications - such as helping OEs meet global regulatory standards like Visteon's PZEV fuel tank systems, adding youth appeal through high-styled MP3s or delivering reductions in maintenance and warranty, like Visteon's long-life filtration.
There are some products from the supply chain that will always be priced as cost plus. But if OEs are to get the absolute best ideas of their supplier partners, other products and systems can only be priced properly with pricing that reflects their full benefits and value.
If suppliers know that OEs are willing to share cost savings and reward suppliers for knowing and testing the market and for innovative R&D, we can really come to the party. Recent initiatives along these lines by GM, DaimlerChrysler and Ford all are promising in this regard.
Going that route would give us an economic model that is more customer-driven.
Of course, the onus is on suppliers to prove to our customers we can deliver … flawlessly, on time and on budget.
This in turn calls for some innovative approaches within the supply base. We must diversify our customer and geographic bases. This is terribly important for Visteon, which is still about 80% dependent on Ford. But probably equally important for a lot of Tier 2s, 3s and 4s who have been devastated by North American production swings. At last count, industry bankruptcies had doubled.
We should consider pooling investments where the capital requirements are high and the payoff or at least the timing is uncertain. Radar-based technologies and telematics requiring extensive software are ones that come to mind.
Given that the M&A market is almost hopeless because of low stock prices and the premium all of us are putting on cash, we should be willing to engage in some handshake relationships in product areas our customers need but are on the wane in terms of maturity … or to jointly bid on some contracts instead of feeling the need to make it all ourselves.
And we must look at cost reduction as an integral part of our corporate mindset. That's easier to do in a downturn because it's essential to survival. If we continue to execute that strategy in an up market, the multiples on suppliers will look a lot better.
We all know that the supplier and OE communities are interdependent. Now let's work together to survive this downturn and be poised for growth as the market returns.