Global Insight Perspective | |
Significance | Automotive Components Holdings (ACH) was created by Ford in 2005 as a holding company charged with the closing or sale of 23 facilities that had been returned to Ford ownership from embattled supplier Visteon. In a deal struck with Ford and the UAW, product lines deemed "non-core" were returned to Ford for divestment or closure, while Visteon continued on with a focus on interior trim, electronics, and other systems that were given a much better chance at profitability. |
Implications | Out of that divestiture came ACH and its 17 component manufacturing plants and six offices, technical centres, and research facilities, all scheduled for closure by the end of 2008 if buyers could not be found. Last week, ACH announced that the number of buyers for its facilities had increased as three different suppliers have now signed memoranda of understanding (MoUs) to transfer ownership of three different plants. |
Outlook | Despite the odds and general industry scepticism, ACH is starting to announce some successes in its goal of divesting or closing all plants by the end of 2008. From an initial roster of 17 plants, it is now down to 10, and with the changes and discipline brought from the ACH management, the outlook for accomplishing their goals seems positive. |
Automotive Components Holdings (ACH) has announced that three suppliers will be taking plants off the company's hands in the coming months: Valeo is scheduled to take on the ACH Sheldon Road climate control plant in Plymouth (Michigan), Flex-N-Gate has signed up to take the Milan (Michigan) plastic fascia and fuel tank plant, and Cooper Standard has said it will have the El Jarudo (Mexico) fuel rail manufacturing plant. The Milan and Plymouth plants are both subject to finalised agreements with the United Auto Workers (UAW) union, but all three MoUs are expected to be finalised into sale agreements.
ACH CEO Al Ver recently spoke to Global Insight by phone, and granted a peek inside the process for how such a difficult undertaking is accomplished. Given that the North American auto industry is currently in a high state of flux with regards to supplier bankruptcies, overcapacity, and shrinking domestic market share, it hardly seems the optimal time to try and sell off unwanted businesses and capacity. But successes at ACH have come through some impressive work and achievement, and the results of disciplined change are starting to be seen in the slow roll-out of sale announcements.
Ver credits discipline and oversight that has been brought to bear on the facilities under ACH control as the key to making them attractive: "The first nine months of our control, we brought a lot more manufacturing discipline, in purchasing, delivery, quality, everybody. We demonstrated a track record of improvement, and that's a great sales tool for anyone considering these plants. Double-digit cost and efficiency improvements drastically increase the value equation. Potential buyers ask, well, if that's what [that plant] can do, what more can they achieve?"
The Value Equation: Why Buy an Unwanted Plant?
That value equation has been a big challenge for ACH as production numbers at Ford have continued to drop. "The volume reductions of twenty percent were a problem, and many people walked away as the value equation changed," says Ver. Asked if potential buyers were more interested in the facilities or the Ford business that comes with them, Ver responded: "Buyers are interested in two things. Yes, there's the Ford business. But more than that, they're interested in the people. Anyone can build a facility, but ours come with a workforce and skill set that is very attractive."
Matching up that skill set and workforce with potential buyers is a big part of how ACH goes about selling those plants. A specific sales team is in place, a cross-functional group of experts from operations, purchasing, and other disciplines, whose job it is to act as both realtors and evaluators for potential suitors. About 50% of potential buyers have come to ACH looking for a plant, and the other 50% are companies that have been approached by ACH. "There are several filters we use for looking at potential buyers," says Ver. "First, is [our plant] a good strategic fit for the buyer? Is it a logical extension of what they're doing, their existing product line? Second, are they going to be a good long-term supplier to Ford, are they in good shape financially? And third, is it a good fit from a value standpoint? Meaning, does it fit well from a buyer's expanding geographic footprint?" The company wants to avoid potential buyers who are after the business and not the facility, says Ver. Thus far, Ver reports that there are over 100 interested parties that are in various stages of discussion.
The mission has not changed with the arrival of Alan Mulally as Ford CEO. If anything, a different spirit has been brought to bear on supplier relations, says Ver. "Alan has been a very strong supporter of what we're trying to accomplish. Something new is that he is putting much more focus on building supplier partnerships than we have seen in the past." That renewed emphasis on supplier partnerships is going to be a challenge, as fewer viable suppliers try to deal with a shaky Ford business. But the biggest challenge, according to Ver, are the differences that arise with every deal done. "I thought it would be easy, that there would be a formula that we could use to sell the businesses. But the biggest challenge we face is simply to sign the deals, as every deal is different, and there simply is no template."
Outlook and Implications
ACH has been making steady progress in divesting the 23 facilities it inherited from Visteon. While the first several months of operation showed a worrisome lack of public progress, it now seems that a flurry of activity was going on behind the scenes. Analysts publicly wondered how ACH could find buyers for plants that were largely regarded as drastically underutilised, frequently outdated, and burdened with contracts with UAW workers who received pay and benefits in excess of competitive levels. Further concerns were raised with the business the plants supplied, largely Ford, which continues to experience a drop in market share that is hoped will bottom out at 14% in 2007.
ACH is turning that around by taking steps to make these plants more profitable. It is commonly known that it is attempting to sell the plants; what is less commonly known is that massive structural work has gone on beneath the surface to make the plants attractive to buyers. A lot of attention is being paid to making sure that potential suitors are a "good strategic fit" for Ford and for the plant in question. The UAW has also played a large part in helping to secure a future for these plants, with a newfound flexibility that has been displayed in a number of negotiations across the industry. Buyouts are only part of the personnel solution; flexibility in job status and roles within the manufacturing plant are also required. The union seems to have come to grips with the global competitiveness issues of American manufacturing, and is now actively becoming a part of the solution, after having been part of the problem for more than a decade.
If the track record thus far of the closing and sale of plants continues, ACH has a very good chance of accomplishing its goals by the 2009 deadline. Ten plants are left to be sold or closed (company spokesperson Della DiPietro says that the technical centres and offices will likely just go back to the Ford Land real estate management subsidiary), and there are two years in which to do it. With an estimated total cost to Ford of nearly US$2.25 billion, those sales cannot come soon enough.