Delphi and Visteon were spun off from GM and Ford respectively at the turn of the millennium, in hopes of cutting costs and improving efficiency. But rather than creating healthy, solid companies they could rely on as major suppliers, the Detroit OEMs used the spin-offs to dump unwanted assets, UAW workers and fixed-cost obligations on their new partners. And now GM and Ford are reaping the bitter harvest of their ill-advised spin-offs. Visteon, which has never turned a profit, just had its stock delisted last week after losing $663M in 2008. Delphi has been in Bankruptcy since October 2005, and, having lost $1.48B last year, it is barely surviving on cash infusions from the General, which really could have used the dough. And both suppliers are threatening to take down America’s two largest automakers.
“Visteon is a really important supplier to us and we will continue to work with them, but we have no plans to change our relationship,” Ford’s Alan Mulally tells Automotive News [sub]. Ford has already intervened to save Visteon (in 2005). “With the industry being down, our biggest concern is the health of the suppliers. The actions that are being taken to free up the credit, to make sure they have credit, is the most important thing for the suppliers right now,” says Mulally.
Delphi, which supplies GM with $5.57 billion in parts annually is even worse off, having languished in bankruptcy for years. Delphi needs $3.75B in capital to exit bankruptcy protection, and a slowing in international business which kept the supplier afloat for years casts new doubts about the overall health of the firm, reports Automotive News [sub]. And, “if Delphi runs out of money and has to shut down, GM shuts down, too,” says Kirk Ludtke of CRT Capital Group. The news isn’t improving, as Delphi retirees are fighting the firm’s attempts to cut over $1B in retiree benefits.
And so it all comes back to the inevitable conclusion: more bailout money. GM’s recent “going concern” notices have suppliers like Delphi concerned that the General won’t make payments on time. GM, reports Automotive News [sub], is asking the PTFOA for $4.5B in federal backing for a “payment-assurance program.” This would be in addition to the $18.5B that the supplier industry has requested, which includes $10.5B for credit insurance, a “quick pay” arrangement to speed payments to suppliers and a guarantee for loans arranged by suppliers with commercial lenders. GM expects the $4.5B to carry its supplier relations through 2011, although it’s not clear if that estimate accounts for the seperate supplier bailout package.
Maybe I’m being naive here (I’m no Peter Schiff), but wasn’t GM and Ford spinning off Delphi and Visteon a rather stupid move?
I say this, not with hindsight, but from a logical point of view.
Toyota and Honda are fretting about Detroit folding because it’ll cause a run on suppliers, which may cause them to fold and hence, stop lines at Toyota, Honda and other such companies. This is why they are shoring up suppliers in order to keep them stable.
Now when GM and Ford spun their respective companies off, it was, as the article says, in the name of cutting costs and improving efficiency.
Trouble is, it didn’t work out that way. The companies, apparently, were troubled to begin with. All spinning them off does, is off load the problem, it doesn’t magically make them better. Detroit would have been better off, using some of the money from the SUV craze to fund a restructuring program to make these suppliers more efficient.
Now, I know what you’re thinking, “Why bother with all that?”
The reason one would bother with that is because, this will secure Detroit’s main suppliers and keep their lines running. And since it is “in house” Detroit can keep a tighter leash on them and profit won’t be such an issue as the profit will be borne from the vehicles they sell.
Thr trouble is with my theory is that, this scenario hinges on three (very fundamental) principles:
1. Long term planning.
2. Not worrying about Wall Street.
3. Efficient management.
I’ve never quite understood the need to outsource manufacture of parts (even the transplants are guilty of this). Maybe I’m missing something. But now that suppliers look vunerable, suddenly, securing suppliers is of grave importance. A headache they could have avoided if they planned ahead.
The whole thing smacks of short term gain…..
What a(n apt) photograph.
I remember when hocking or spinning off your internal divisions was all the rage, amd that at the time, Toyota was taking some flak for not divesting itself from Denso and Aisin. So were a lot of other companies that suddenly looked like patsies for remaining vertical.
Heh.
I’ve wondered if the fall of Delphi or Visteon could be a real boon to Denso and/or Bosch, if they’re able to tool up quickly enough. Maybe the bailout bucks intended for Delphi should be shovelled to the Denso (and similar efforts to GM and Chrysler to Toyota) on the grounds that bridging an otherwise successful manufacturer is better use of the money than propping up someone who’s been in bankruptcy for half a decade with no signs of coming out.
I don’t care about any of all this; I just want access to the name “Visteon” once it’s available. Cool name.
Visteon.
The idea about spinning off the parts supplier was to force someone else to deal with costs of manufacturing, legacy costs, and lack of innovation. In reality what it did, was increase the costs, because the overhead costs exponentially increased, didn’t get rid of the legacy costs, and now there was even less innovation.
Ford seating systems was an absolute classic as they desourced internal supply chain outsourcing to 2(3?) competent companies. Unfortunately, now they had shadow engineering, poor direction, and incompetent support. Ford recognizing it was obviously a supplier problem, resourced the seating back internally… without changing the shadow engineering, poor direction or shadow engineering. And then wonder why customers complain the seats are not very comfortable, and the costs are still excessively high.
Delphi going out, and their financials are really messed up, will take down virtually the whole automotive business around the world. Their product is in almost every car being built today. Wire harnesses are one of the longest lead items in a car, almost longer then body panel tooling. It’s also one of the most difficult to get right on the first try and you have hundreds of connections coming and going, and all those wires have a risk of electrical interference.
The idea behind Delphi and Visteon was that components are not within the core competencies of the auto companies, and they’d get business from other OEMs. What went wrong? D & V were staffed with the OEM people who a/ kept their pay and benefits, b/ didn’t want to be seperated from their parents, c/ kept many of the OEM systems and practices that were designed for an OEM, not a component supplier.
So, they started life with employees overpaid compared to their competition, who didn’t want to be there, had inappropriate processes and systems and didn’t know how to win business from other OEMs – oh, and they had to compete to keep the business they already had.
I think the Delphi seperation took many years, but I know the Visteon deal was done in a hurry, (probably driven by Jac wanting to suck up to Wall Street).
So, they started life with several handicaps, any wonder they’re struggling now?
Who prohibits Visteon from cooperating with other car companies and designing parts for them? And who has prohibited Delphi to come up with more than just 3 types of Satellite radio? How about other consumer electronics?I guess, I have the answer already…the moving parts.
Wasn’t it Wagoner who spun off Delphi. He is also responsible for the purchase of Fiat.
In the hall of shame Way-goner is 2 for 2, and batting a thousand.
Cardeveloper
“Wire harnesses are one of the longest lead items in a car, almost longer then body panel tooling. It’s also one of the most difficult to get right on the first try and you have hundreds of connections coming and going, and all those wires have a risk of electrical interference.”
I beg to differ. I worked for a wire harness manufacturer for 15 years. We have the shortest lead times. We were always having to make up for design deficiencies (errors, timing, etc.) in other areas of the car. It is easier to change a wire haress fixture than a casting mold or a press die. Every other component in the car required a 16 week lead time. We usually did it in half the time OR LESS.
Here is the thing. We are continuously told about all the millions who will lose jobs if GM and Chrysler go BK. We are supposed to feel sorry for the suppliers because it’s not their fault. Well, I kinda think that if your company is so dependent on a single company, then you really ARE that company.
GM has lot’s of corporate entities, and, as far as I am concerned, Delphi is simply one of them. The difference is technical more than actual.
Another arm chair quarterback thought…
GM (and Ford) should have spun off the Brands as independent companies and forced them to buy the parts from GM the supplier. You know…kind of like Opel.