Delphi, Visteon: What happened
Delphi Corp. and Visteon Corp. - North America's two largest auto suppliers in 2004 - spun off from General Motors and Ford Motor Co. with the hopes of launching innovative businesses and growing away from their parents' automotive heritage.
They tried with limited success; but in the end, it didn't work.
Delphi, of Troy, Mich., sought Chapter 11 bankruptcy protection on Oct. 8; and Visteon, of Van Buren Township, Mich., completed a massive bailout from Ford on Oct. 1. Billions of dollars in annual business and tens of thousands of jobs are now at risk at Visteon, Ford and Delphi. GM also faces liabilities of several billions of dollars.
So what went wrong?
In short, Delphi and Visteon failed to generate enough business away from their former parents to build a new profit base. This is a closer look at what happened.
With 23 fewer North American factories, labor costs that have dropped from an average of $37 an hour to $17 and a core business focused on only three segments, Visteon Corp. this year has avoided the fate of rival Delphi Corp.
Delphi filed for Chapter 11 bankruptcy protection on Oct. 8.
"The new Visteon has a real chance of being competitive," says Paul Haelterman, director of global market assessment for CSM Worldwide, a consulting company in Farmington Hills, Mich. "They are very, very good in that product space. And they have chosen to stake out their last battle in an area where they are very good."
Since becoming independent from Ford Motor Co. in 2000, Visteon, like Delphi, has become a bigger company. But crucial sales to Ford, its biggest customer, have dropped because of Ford's sliding market share, a scenario Visteon's original management team warned of in the company's original stock propectus.
"We are dependent on Ford's continued success, on maintaining our current business and winning future business with Ford. Decreases in sales to Ford will adverserly affect our results," Visteon's June 2000 prospectus warned.
Ford's North American sales have plunged 22.7 percent since 2004, a loss of about 911,000 units a year.
Visteon's total global revenue dropped from $19.4 billion in 1999 to $18.7 billion in 2004.
But the financial fallout from Ford's problems has punctuated Visteon's growing flow of red ink.
Visteon's total global sales from Ford fell from $16.4 billion in 2000 to $13 billion in 2004. Total global sales to other customers over that period increased from $3 billion to $5.6 billion. But losses mounted each year since the spinoff from Ford - reaching $1.2 billion in 2003 and $1.5 billion in 2004. Visteon has posted another $1.4 billion in losses so far in 2005.
Visteon has been winning business from other automakers but was not able to reduce its dependence on Ford fast enough to avert the crisis that forced Ford in May to anounce a sweeping bailout of Visteon, of Van Buren Township, Mich.
On Oct. 1, the two agreed that 23 factories with about 18,000 highly paid UAW workers would go back to Ford as part of the $2.25 billion plan.
Before the bailout, Visteon's content on an average Ford vehicle was $3,000. After the transaction, it is expected to fall to about $1,000, says Visteon spokesman Jim Fisher.
At the end of 1999, Visteon operated 84 plants in 23 countries and had 81,500 workers on its payroll.
At the end of last year, Visteon had 136 plants in 24 countries and 70,200 employees.
The new, trimmed-down Visteon will concentrate on electronics, climate controls and interiors.
The company plans to continue downsizing by selling or shuttering some of its European operations or moving production of profitable components from high-cost countries to low-cost countries such as China and Mexico.