DETROIT - Ford Motor Co. is reviewing prices it pays for parts from its Visteon Automotive Systems subsidiary in a bid to cut costs. The process is delicate because Visteon is preparing to spin off from its corporate parent this year.
Analysts say Ford wants the lowest prices possible, but can't cut too much or it will risk harming Visteon's future.
A similar 'competitive price review' was completed three years ago, and resulted in $500 million being returned by Visteon to the automaker. This new review will be completed in the first quarter, and Ford says it expects Visteon 'will be reducing prices.' Analysts say the cuts are likely to be substantial.
The price review is creating some conflict between the automaker and its $19 billion-revenue parts supplier, auto insiders say. A Visteon spokesman acknowledged some tension but said the review was necessary to ensure Visteon was competitive before leaving the Ford group.
'I guess there is a little bit of tension,' said Kent Niederhofer, Visteon manager of investor relations. 'Yes. Ford is in a position where it can cut prices on one part where it thinks we are too high, but it's not like they are going to increase prices for us in some other area where we are below competitors.
Analysts say the price review, mentioned by Ford in its recent quarterly earnings statement, could push back an initial public offering for Visteon until the third quarter of the year.
'Ford is walking a fine line of pushing ahead on its investment case versus Visteon's sell-off case,' said David Andrea, chief economist for CSM Worldwide, an auto consulting firm in Northville, Michigan, USA. 'They are playing both sides and have to do this review delicately.'
The review essentially is a comparison of the prices Visteon charges for the 100-plus product lines it supplies to Ford with the prices charged by competing suppliers.
Any price cuts affect only current Visteon parts contracts to Ford, though contracts often have several years remaining. The cuts would not affect future Ford contracts or parts supplied to non-Ford customers, a Ford spokesperson said.