Ford favours fast track float for Visteon to grab market share

Ford has announced it is following the lead of General Motors and spinning off its component supply subsidiary Visteon, as it looks to expand its customer base and compete in the integrated systems supply market

Ford is following the lead of General Motors and Delphi by spinning off its components business Visteon as a stand-alone company.

Though its origins within Ford can be traced back for a century, Visteon was set up as a separate Ford subsidiary less than three years ago.

Last month Ford announced that the route to independence would be through distributing Visteon stock to Ford shareholders, rather than an initial public offering. Subject to regulatory approval, this means Visteon may be floated off within weeks.

The company had a turnover of $19bn (£12.7bn) last year. Depending on how it is measured, it is the second or third largest automotive supplier in the world – Delphi is first by some margin. Visteon has 84 plants in 23 countries, including a number of R&D centres, and will keep all its patents. When it is floated it will be the 87th largest company in the Fortune 500.

In the UK it has four manufacturing sites, employing 3,000 staff, and four technical centres – in electronics, interiors, energy transformation and climate control – employing another 1,000.

Geographically, 80% of Visteon’s business is in North America, compared with just 15% in Europe. Ford, its biggest customer, accounts for 88% of its business and a priority for Visteon will be to try to overcome this dependence.

Dan Coulson, executive vice-president and chief financial officer, who was in London to meet investors last week, says: `We’re not trying to give up Ford business: we want to retain it and use it as a platform to grow the non-Ford business. But we’re aiming for 15% non-Ford work this year and 20% by 2002.

`The timing and form of the spin-off are ambitious. It would be normal to have an initial public offering. We decided to do the spin-off directly because we think the timing is right.

`Many customers said that while we were part of Ford they didn’t want to give us their business, because they saw us as a competitor. And the trend towards supplying fully integrated systems and modules on a global scale is moving in our favour, so we’re trying to move as quickly as possible.’

This growth in supplying modules, such as an entire dashboard assembly rather than individual parts, is one that Delphi has also capitalised on.

Observers have argued that Visteon has been shielded from competitive pressures by its parent and that, once independent, it could lose business to cheaper competitors.

Coulson says steps have been taken to deal with that: `Late last year we and Ford undertook a joint study of all our products and concluded that a one-time reduction in all our prices, averaging 5%, was necessary for us to be competitive.’

In return, Ford guaranteed $6-7bn of business. Visteon is still investigating where it will make savings. `We are not expecting to fully offset that price cut immediately – it will take about a year,’ says Coulson.

But he adds that the company has a strong record on cost reduction. `We saved $600m a year for the past three years, and our target is $450m this year.’

Visteon has the capability to provide 40% of a vehicle’s content, according to Coulson. The main area it does not plan to enter is engines and transmissions. Elsewhere, it will focus on systems integration, working with lower-tier suppliers to offer complete packages to car makers.

Growth is expected to come from non-Ford customers and in correcting the imbalance between US and European sales. The company is also targeting after-market sales, an area that is now growing strongly, and telematics – vehicle electronics. This includes navigation systems, and the company has also entered joint ventures with Nintendo to supply a rear-seat entertainment system, and Belgian company Lernout and Hauspie, a specialist in voice activation systems.

There are also opportunities within the Ford group, Coulson says: `A couple of years ago we did almost no business with Jaguar. We have now become their number one supplier by demonstrating quality. We hope to do the same thing with Volvo, and now Land Rover.’

Coulson also sees benefits from the internet, first to allow better exchange of data with tier two and three suppliers in particular, and also in procurement.

`We buy $10bn worth of materials every year. Not all of it lends itself to internet auctions but some does. We’ve run pilots and we think there’s a real opportunity to reduce costs.’

Moreover, this comes without a corresponding risk. `Our products are highly engineered and embedded in the vehicle – there’s little option for doing internet auctions for the things we produce.’

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