Ford and Visteon: Ties That Bind

When Ford Motor Co. (F ) was gearing up to spin off its Visteon Corp. (VC ) parts business four years ago, the biggest obstacle was getting the union's blessing. Ford and the United Auto Workers nearly had a strike -- and in the end settled on a deal that has proved costly for both companies. Ford guaranteed that Visteon's 20,000 UAW workers would keep the same pay. It promised them their jobs back if Visteon were to go under -- meaning they're still practically Ford workers. So the companies will negotiate side by side to renew the UAW's labor pacts, which expire in August.

But the two employers are likely to tangle with each other as much as with the union. The reason: Visteon, headed by former Ford Vice-Chairman Peter J. Pestillo, is losing money and wants to send workers back to Ford, which itself needs to cut jobs. Visteon also hopes to bring its $22-an-hour wages more in line with other parts makers, which pay about $14. But the UAW isn't likely to take cuts at both companies. "As far as we're concerned, it's still the same company," Gerald D. Bantom, the UAW's chief Ford negotiator. "There will be one agreement."

It will be difficult for both companies to win. Under the spin-off, Visteon can send workers back to Ford only if the auto maker is hiring. Ford says it can eventually take some workers, but there won't be too many openings while Ford itself is trying cut jobs.

Without concessions from the union, Visteon's woes may mount. Executives say high labor costs are one reason the company has been slow to land new contracts with carmakers other than Ford. Since the spin-off, Visteon has upped its non-Ford business by $600 million, to $3.6 billion of its $18.4 billion in revenues last year. But it's not enough to offset the $1.5 billion in Ford business it has lost, in some cases, to lower-cost suppliers. The result: Visteon lost $352 million last year.

At this point, Ford has so many problems that Visteon's needs could be overshadowed. What's more, last year they battled over $175 million in price cuts that Ford demanded, settling the matter in a private deal that left both sides unhappy. "Ford hates us," says one Visteon executive. "If they can do business with someone else, they will."

Still, Ford can't let Visteon fall too far, what with the existing UAW contract that has Ford paying Visteon's workers as a last resort. Neither company wants to contemplate that scenario.

By David Welch in Detroit

    Before it's here, it's on the Bloomberg Terminal.