By the late 1990s, Ford Motor Co. was eager to shed its high-cost, marginally competitive parts operation.
But the automaker failed to fix the parts unit's problems - including high UAW labor rates and several money-losing operations - before spinning it off as Visteon Corp. on June 29, 2000.
"Right from the get-go, they had a couple of albatrosses around their neck," says Scott Upham, an industry analyst with J.D. Power of Troy, Mich. "Visteon has had some difficulties, and a lot of that was due to not right-sizing the organization quick enough."
Preparing for independence
By dumping its parts business, Ford followed the lead of General Motors, which spun off Delphi Corp. in 1999. But Ford didn't devote as much management attention as GM did to the task.
GM put one executive, J.T. Battenberg III, in charge of its fledgling parts company. In contrast, Ford carved out Visteon as a separate reporting unit in 1997 and saw two presidents leave before independence day three years later.
Visteon went public without a president, although CEO Peter Pestillo had arrived in part to stem another problem that nearly crushed the spinoff.
The UAW, angered by the Delphi split, vowed to strike over the Visteon plan in the summer of 1999. But Pestillo, Ford's longtime labor relations chief, was credited with smoothing the way. To win labor peace, Ford agreed that UAW workers in Visteon plants would remain Ford employees for life, with their pay and benefits preserved.
The agreement enabled the spinoff but left Visteon paying wages and benefits of $50 an hour and up, more than double labor rates of some competitors. It also left Pestillo and his team with the daunting task of executing the legal separation, winning over investors, retaining employees, head-hunting for executives and trying to sell Visteon parts to non-Ford customers.
Michael Johnston, a former Johnson Controls Inc. executive, joined Visteon as president in September 2000, and executives from other suppliers followed to kick-start a sales-minded culture at Visteon. New business, including big contracts with Nissan and Hyundai, followed.
But Visteon has clashed with bread-and-butter customer Ford, which still is responsible for 80 percent of revenue. Perhaps the most tense moment came in early 2002 when a $125 million spat over price cuts went public before being settled in Visteon's favor.
Wall Street has criticized the supplier for not cutting enough jobs and expenses. Visteon was saddled with some unprofitable operations, and the industry downturn hampered its ability to shed or clean up those businesses.
In March 2003, Visteon finally got out of the seating business, which lost an estimated $100 million-plus in 2002. The company lost $352 million in 2002 on revenue of $18.4 billion.
Visteon predicts that Ford business will drop to 70 percent of revenue by 2005. New orders from non-Ford customers are producing higher margins, something desperately needed. But the jury is still out on Visteon's future. UAW contract talks scheduled for this summer likely will do much to shape the future competitiveness of the former Ford parts operations.