DETROIT Ford buys spinoff parts division, Visteon

The company struggles with high costs and too much reliance on Ford.
KNIGHT RIDDER NEWSPAPERS
DETROIT -- Three and a half years after spinning off its parts division as Visteon Corp., Ford Motor Co. took back responsibility for $1.65 billion in the supplier's future retiree benefits -- and plans to eventually reassign up to 20,000 highly paid workers from parts plants to auto plants.
In exchange, Visteon will pay Ford $150 million over the next few months and accept steeper than normal price cuts for four years. Ford also agreed to pay its bills to Visteon about 10 days earlier for two years and to provide up to $100 million to help pay for Visteon's new information-technology system.
Even though the changes to the 2000 spinoff predominantly help Visteon become more competitive with Delphi Corp. and others, influential credit-rating agency Standard & amp; Poor's Corp. on Monday cut Visteon's rating by two notches to "junk" levels. Visteon makes a wide range of auto parts, including electronics, drivetrain and interior components.
'Bailout'
In fact, the renegotiation -- characterized by some analysts as a bailout -- provided further evidence of Visteon's problems.
Since posting a $270 million profit in 2000, it has lost $820 million and is expected to lose up to $800 million more in the fourth quarter, including one-time charges outlined Monday.
The $1.65 billion in liabilities that Ford is assuming covers health care and life insurance for future hourly retirees.
"Visteon's weak performance has been symptomatic of its high-cost structure and reliance on one customer," said Martin King, who studies auto suppliers for Standard & amp; Poor's.
Three-fourths of Visteon's sales are to Ford, which has lost market share in the United States each year since Visteon's 2000 spinoff. And in each of those years, the total U.S. market has declined.
Challenging times
Executives for both companies cast Monday's announcements as a mutually beneficial response to the challenging times.
"We don't think things are bad, and we don't look at this as being bailed out," said Michael Johnston, Visteon's president and chief operating officer.
Visteon shares were down for much of the day before jumping into positive territory, posting a gain of 34 cents, or 3.4 percent, to close at $10.34.
After the spinoff, the shares traded in the low teens before topping $20 a share in 2001 and spending most of this year in the $7 to $8 range.
Ford shares however, soared by $1.55, or 10.2 percent, Monday to $16.79 -- its highest level in a year and a half -- even though it plans to take $1.6 billion in charges that will consume 80 percent of this year's profits.
Aside from the Visteon deal, the automaker raised its outlook for fourth-quarter operating profit, announced plans to put $7 billion in pension and retiree-benefit plans, and said it will use "defined contribution" plans for new salaried employees' pension and retirement health-care savings.
Similar to 401(k)s, such plans don't provide the guarantees of a traditional "defined benefit" type of coverage plan. But they give employees the opportunity to take their accounts with them to future employers, which seems to appeal to younger workers, said Ford Chief Financial Officer Don Leclair.
GM has had a similar plan for salaried employees hired since 1993.
The employers benefit because costs are more predictable and not subject to the ups and downs of the stock and bond markets.