 Frank Macher has experience with troubled businesses. |
As part of its massive bailout of former in-house parts supplier Visteon Corp., Ford plans to take back 24 unprofitable factories and support sites. The plants employ 17,400 UAW-represented Ford workers and produce at least $6.6 billion worth of parts for Ford vehicles annually.
Ford needs the parts, but it doesn't want the plants. The automaker intends to sell the factories to suppliers, but that won't be easy. In many cases, Visteon has tried - and failed - to sell some of these same plants.
"This is not a good thing, clearly," Ford CFO Don Leclair said last week. "It is a tough situation that we are in and that our largest supplier is in."
Arm's length
The bill could approach $3 billion before Ford has fixed this problem. (See box.) But Ford no longer will have to pay bloated prices for parts made by Visteon. By 2010 that will allow Ford to start recouping its costs.
Before last week's announcement, the cost of Ford's previous bailouts to the supplier already had topped $2 billion. With the latest rescue, Ford is seeking a "true arm's-length relationship with Visteon," Leclair said.
The seeds of Visteon's financial crisis were sown in 2000, when Ford spun off its parts operations. It was a rush job. Before the spinoff, Visteon was not given time to sell or close unprofitable factories.
Workers were paid wages and benefits that were twice as generous as those paid by some rival suppliers.
Not surprisingly, Visteon had little success trying to sell undesirable businesses on its own. Now those undesirable businesses are back in Ford's lap. The automaker wants to sell or close them by 2009 at the latest.
As an incentive to buyers, Ford will subsidize the wages of those factory workers. Ford will pay the difference between their current wages and benefits of $63 an hour and the cheaper wages paid by other suppliers.
Ford also could guarantee future contracts to interested buyers.
Back to Macher
Nearly all of the 24 operations will be put into a holding company controlled by Ford. The automaker plans to sell or close those facilities.
Ford plans to keep two Visteon plants in Michigan - the powertrain plant in Rawsonville and the axle plant in Sterling Heights. A Ford spokesman says the components made in those two plants are critical to its automotive business. But long-term prospects for those factories are not clear.
One plant - the seat foam plant in Chesterfield, Mich. - will be closed in mid-2006, according to a UAW memo. Other plants also may close, though Ford has not identified them.
UAW members must ratify the plan. They are expected to vote over the next couple weeks.
Ford and Visteon aim to complete the transaction in September. Former Ford executive Frank Macher will come out of retirement on June 1 to be the holding company's CEO. Macher is a logical choice; he ran Ford's parts operation until he retired in 1996.
Big price
The bailout's $3 billion price tag covers a variety of costs.
Over the next five years, Ford expects to take a $1.15 billion charge to cover some bailout costs and buyouts to 5,000 employees. Ford also forgave $600 million in retirement obligations owed by Visteon. Ford already has set aside an allowance for this expense.
More charges are possible in future years to cover potential environmental liabilities, Ford says.
During the next two years, Ford also expects its parts plants to generate operating losses ranging as much as $475 million. As Ford sells factories and reduces payroll through attrition, operating losses should diminish from 2007 through 2009.
By 2010 Ford expects to enjoy the fruits of its bailout. Ford predicts it will save as much as $700 million from lower parts costs.
Ford can ill-afford the added costs as it struggles to carry out its own turnaround plan. But Visteon's financial pressures were so serious that Ford could not delay the rescue.
Visteon "could basically hold them hostage," said the source familiar with Ford's plans. "When you have that much concentration of business, they could basically not ship them parts and shut them down to get what they wanted."
You may e-mail Amy Wilson at [email protected]
