DETROIT -- Ford Motor Co. and Visteon Corp. have reached an interim agreement aimed at keeping Visteon from failing.
In a two-pronged restructuring aimed at propping up Visteon, Ford has agreed to give Visteon $120 million in accelerated payments for parts by month's end.
The automaker will spend an additional $150 million to buy new equipment for Visteon plants. And Ford will start paying a portion of the wages owed to Ford workers employed by Visteon.
At the same time, Visteon is trying to sell some operations. And the supplier reportedly is discussing the formation of a holding company that would allow Ford to take over and sell some unprofitable Visteon factories, according to The Detroit News.
The Ford-Visteon agreement "makes it clear that Ford remains inextricably linked to Visteon and is unlikely to let the company fail," says analyst Rod Lache of Deutsche Bank in New York. The bailout will allow Visteon to break even this year - but not prosper, Lache says. Visteon gets lower labor costs, but the company cannot pass along higher raw material costs to Ford.
If in effect through 2005, the bailout could be worth about $500 million in reduced payments and other cash flow assistance. This amount roughly equates to the cash flow shortfall that Visteon was expected to have, says Mark Oline, managing director for Fitch Ratings in Chicago.