Visteon - what went wrong?

[Wes Bucey]

Today's news carries a story about financial troubles and travails of Visteon (the Ford spinoff.) Do you have insight or theory about WHY they seem to have such a spectacular financial failure? Any insider stuff you might share? [Blue comments are mine.]

Visteon posts big loss on bailout-related charges
By Poornima Gupta
DETROIT (Reuters) - Auto parts supplier Visteon Corp. (NYSE:VC - news) on Monday posted a quarterly net loss of $1.2 billion, pressured by charges related to the return of unprofitable plants to former parent Ford Motor Co. (NYSE:F - news)

The results included special charges of $1.1 billion, or $9.01 per share, mostly for a write-down of the value of plants Visteon will be returning to Ford.
Visteon reported a net loss of $9.49 per share, in preliminary second-quarter results. The company provided no comparative figures from the prior year.
In May, Ford agreed to help Visteon restructure by taking back 24 unprofitable North American plants and some 17,400 high-wage workers Visteon has leased from Ford for the plants.

The factories will be held in a separate Ford-owned entity where most can be buffed and sold.

Visteon said it expects a significant number of its salaried work fare [force?] in North America to support the new entity, with Ford reimbursing Visteon for the cost of these employees.

Van Buren Township, Michigan-based Visteon, which has struggled to become profitable since Ford spun it off in 2000, expects to complete the deal by the end of September. It also expects more restructuring over the next several years.

Excluding the charges, Visteon lost 48 cents per share. On that basis, Wall Street analysts expected a loss of 69 cents a share, according to Reuters Estimates.

Prudential Equity Group analyst Michael Bruynesteyn said Visteon shares are likely to trade higher on Monday as non-Ford revenues were up strongly and the financial results, although poor, beat consensus.

Visteon said revenues for the quarter was $5 billion, while sales to non-Ford customers grew 29 percent to $1.8 billion.

"Our customer diversification continues as non-Ford sales were 36 percent of total sales in the second quarter and we continue to win new business with these customers in our key growth products," said Mike Johnston, Visteon chairman and chief executive officer, in a statement.

Ford sales decreased more than 7 percent, to $3.2 billion, primarily reflecting production cuts at the No. 2 U.S. automaker.

Second-quarter results were also hurt by price reductions and increased reserves for customer bankruptcies, Visteon said.

Visteon said the results were preliminary as it is conducting a review of errors in the company's North American purchasing activities. [What does this mean?]

Visteon last week said it may have to restate results from the first quarter and prior periods after finding $77 million of accounting errors for freight expenses, material surcharges and supplier expenses. [Where were the SOX controls?]

I have no specific info, but noticed that Delphi, who spun off from GM, is also in financial straits. So, were these units spun off because they were a financial drag, and this is just becoming more apparent now that they are on their own, or were they squeezed harder by their parent companies (now customers) after they were spun off and just don't have any margin left? I do know that there are now quite a few companies who will no longer take on new business with DC, Ford and GM, while actively pursuing new work with Honda and Toyota. So in my mind the problem is likely to be the parent, not the child that is now struggling, having been poorly raised then kicked out on their own.

[Wes Bucey]

Originally Posted by dokes

I have no specific info, but noticed that Delphi, who spun off from GM, is also in financial straits. So, were these units spun off because they were a financial drag, and this is just becoming more apparent now that they are on their own, or were they squeezed harder by their parent companies (now customers) after they were spun off and just don't have any margin left? I do know that there are now quite a few companies who will no longer take on new business with DC, Ford and GM, while actively pursuing new work with Honda and Toyota. So in my mind the problem is likely to be the parent, not the child that is now struggling, having been poorly raised then kicked out on their own.

Why do you suppose a "lean, hungry supplier" doesn't want to do business with Ford or GM? Is there something "non-value added" in the way Ford and GM deal with their supply chains which drives an efficient supplier to where he will be appreciated?

I think I hear Deming and Crosby laughing! Those of us still alive may be laughing between the sobs for the ultimate fate of the US-based Visteon and Delphi workers.

[Jim Wynne]

Originally Posted by Wes Bucey

Why do you suppose a "lean, hungry supplier" doesn't want to do business with Ford or GM? Is there something "non-value added" in the way Ford and GM deal with their supply chains which drives an efficient supplier to where he will be appreciated?

I think I hear Deming and Crosby laughing! Those of us still alive may be laughing between the sobs for the ultimate fate of the US-based Visteon and Delphi workers.

I don't know about Crosby, but Deming would not be surprised. The simple fact is that the American Big Three built their supplier relationships on a foundation of fear, loathing, and demands for price cuts when margins were already razor-thin, instead of finding better ways to do things themselves. Ford and GM are slowly choking to death on their own hubris and incompetence. As for Visteon and Delphi, they learned their way of doing business from the masters.

[Wes Bucey]

Originally Posted by JSW05

I don't know about Crosby, but Deming would not be surprised. The simple fact is that the American Big Three built their supplier relationships on a foundation of fear, loathing, and demands for price cuts when margins were already razor-thin, instead of finding better ways to do things themselves. Ford and GM are slowly choking to death on their own hubris and incompetence. As for Visteon and Delphi, they learned their way of doing business from the masters.

The reason we hear Deming and Crosby laughing from beyond the grave is because both Crosby's grids and Deming's System of Profound Knowledge pointed to this kind of "implosion" all along. The big brass at Ford and GM steadfastly refused to believe that the Deming and Crosby pronouncements applied to them.

[Sidney Vianna]

Originally Posted by JSW05

I don't know about Crosby, but Deming would not be surprised. The simple fact is that the American Big Three built their supplier relationships on a foundation of fear, loathing, and demands for price cuts when margins were already razor-thin, instead of finding better ways to do things themselves. Ford and GM are slowly choking to death on their own hubris and incompetence. As for Visteon and Delphi, they learned their way of doing business from the masters.

I wish the ISO 9001 Standard and it's Automotive derivative - ISO/TS 16949- had a hint of connection with the "mutually beneficial supplier relationships" principle , one of the 8 management principles comprising the basis for the 2000 version of the ISO 9000 family of documents. ISO 9001 has no requirement that reflect that principle. Should it?

Principle 8 Mutually beneficial supplier relationships
An organization and its suppliers are interdependent and a mutually beneficial relationship enhances the ability of both to create value

Key benefits:

• Increased ability to create value for both parties.
• Flexibility and speed of joint responses to changing market or customer needs and expectations.
• Optimization of costs and resources.

Applying the principles of mutually beneficial supplier relationships typically leads to:

• Establishing relationships that balance short-term gains with long-term considerations.
• Pooling of expertise and resources with partners.
• Identifying and selecting key suppliers.
• Clear and open communication.
• Sharing information and future plans.
• Establishing joint development and improvement activities.
• Inspiring, encouraging and recognizing improvements and achievements by suppliers.

[gpainter]

Just goes to show you big is not the best. GE is another one that I think will be in trouble in the next few years. They do help but also bully.

[Jim Wynne]

Originally Posted by Sidney Vianna

I wish the ISO 9001 Standard and it's Automotive derivative - ISO/TS 16949- had a hint of connection with the "mutually beneficial supplier relationships" principle , one of the 8 management principles comprising the basis for the 2000 version of the ISO 9000 family of documents. ISO 9001 has no requirement that reflect that principle. Should it?

The problem is not with the standard of course. ISO 9k2k has never caused anyone to develop mutually-beneficial relationships with suppliers because OEMS don't want mutually beneficial relationships by and large, and many job shop owners perceive any level of interest from OEMs to be intrusions and people telling them how to run their businesses.