Visteon, Delphi post 4th quarter of losses

2 auto-parts makers are tied to Ford, GM

August 09, 2005|By BLOOMBERG NEWS

DETROIT - Visteon Corp. and Delphi Corp., the largest U.S. auto-parts makers, posted a fourth straight quarter of losses yesterday as the result of Ford Motor Co. and General Motors Corp. cutting production in the first half.

Visteon's second-quarter net loss was $1.19 billion, including $1.1 billion in noncash expenses to write down the value of plants it is shedding. Delphi posted a $338 million loss and said its third-quarter sales will be down from a year ago.

Delphi and Visteon have turned to their former parents, GM and Ford, respectively, for help in reducing losses after sales declines in the first five months of the year prompted carmakers to cut output by a combined 9.6 percent. In May, Ford agreed to take back workers and 24 plants from Visteon, and GM said yesterday that it's considering a Delphi request for financial aid to avoid bankruptcy.

"You're not going to get good numbers out of those companies until something is done" about labor costs, said Kevin Tynan, an analyst at New York-based Argus Research. "I'm surprised the numbers weren't worse."

Visteon shares rose $1.34, or 16 percent, to close at $9.85 on the New York Stock Exchange after the company said that when the bailout by Ford is finished, Visteon expects a gain that will be larger than the second-quarter expenses. Delphi rose 7 cents to $5.03.

Visteon, the No. 2 U.S. auto-parts maker, said its net loss was $9.49 a share, including $9.01 for the write-down cost. A year earlier, the Van Buren, Mich.-based company had net income of $24 million, or 19 cents a share. Sales rose 2.7 percent to $5 billion from the $4.87 billion reported a year earlier, helped by new business from customers other than Ford.

Ford accounted for 64 percent of second-quarter revenue, as sales to the former parent fell 7 percent, Visteon said. Ford reduced North American production 4.8 percent. Visteon has said it expects sales to Ford to fall to 50 percent after the bailout.

The automaker agreed in May to take back the plants to help Visteon reduce manufacturing costs. The parts maker has lost money every year since 2000, in part because of costs for 17,400 Ford employees who work at Visteon under terms of the spinoff. Visteon reimburses Ford for their wages and benefits, which are about double those paid to factory workers at competitors.

Delphi, the largest U.S. auto-parts maker, said its loss was 60 cents a share, compared with net income of $143 million, or 25 cents, a year ago. Sales fell 6.9 percent to $7.02 billion from $7.54 billion.

The loss included $49 million in restructuring costs as Delphi cut 2,100 jobs during the quarter. The Troy, Mich.-based company is trying to reduce its work force by 8,500 people this year and is increasing the number of jobs to be eliminated outside the United States because union contracts will limit U.S. reductions to about 2,500 workers rather than the 3,000 targeted, acting Chief Financial Officer John Sheehan told analysts.

"We have an uncompetitive and unsupportable cost structure in the U.S.," Chief Executive Officer Steve Miller told analysts. "I have spoken with the UAW and Rick Wagoner at GM and they are well aware of the magnitude of the situation."

Delphi set an Oct. 17 deadline for arranging assistance from the automaker and union, GM said yesterday in a U.S. regulatory filing. Miller said he would consider filing for bankruptcy protection only if GM and the United Auto Workers don't agree to help. He said changes in U.S. bankruptcy law that take effect in October are also a consideration.

On Friday, the company said it borrowed $1.5 billion from its lenders as it tries to reach an agreement with GM. Sheehan said yesterday that Delphi doesn't intend to spend the money and borrowed it as a "prudent" step. Delphi had cash reserves of $988 million as of June 30, according to a regulatory filing yesterday.

Delphi said revenue from customers other than GM rose 3 percent in the second quarter and accounted for 51 percent of the total. Sales to GM fell 18 percent, the parts supplier said. GM trimmed North American production 10 percent.

Delphi forecast third-quarter sales of $6.1 billion to $6.3 billion, which would be down from $6.6 billion a year earlier. Miller said the company also plans to sell another business unit by the fourth quarter, without giving details.

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