Visteon Corp. is laying down the hammer to suppliers as it seeks not only big cost cuts, but an upfront, prepayment of those cuts that sounds more like the payoffs seen in organized crime than the auto industry.
The company maintains the upfront payments — equal to 10 percent of the contract's first-year value — are merely a tool to determine which firms seriously are able or willing to remain connected to Visteon as it shaves its supplier base to 500 from 2,500. That's a poor argument. Visteon would not stand by willingly and accept that kind of deal from its customers without complaint — nor could it afford to — but yet it expects the same of far smaller companies.
Yes, Visteon needs to be cautious as it trims its supplier base to ensure that it partners with good companies. There are other ways to do that, though, ones that can bring it together with top-notch companies ready and anxious to grow. Visteon includes issues such as delivery and quality in its documents. But specific requests for cash have little in common with tracking the number of defective parts per million or in-house engineering expertise. Exactly what kind of quality workmanship does one generally get through extortion anyway?
And make no mistake. The 10 percent it wants will work out to more than that for molders that probably will have to seek outside financing, invest in new equipment and potentially build more plants to meet future demands for geographic diversity. The companies targeted in the injection molding request for quote documentation circulating in February are not necessarily operating in value-added manufacturing areas. They are shoot-and-ship molders, the makers of decorative trim and functional components for under-the-hood uses. They are the same companies struggling to survive on a regular basis, and most cannot afford even the 6 percent annual price cut demanded, never mind advance payments.
The time, money and effort that would go into buying a long-term relationship with Visteon would be far better served chasing business with the more highly desired automakers that have a real history of collaborative and cooperative partnerships with their suppliers.
If there ever were a time that competitors should stick together and reject a bad deal, it is now. Yes, prepayment has been used on other occasions, but typically in small-scale arrangements geared at a specific product line. Accepting this pact, from a company the size of Visteon, means upfront cash will become an industry norm. If Visteon gets it, others will demand it — routinely. That is something an already-hurting manufacturing base cannot afford.
The backlash already has begun. Injection molders who have seen the RFQ are talking now about how they rejected it outright. Even Visteon officials have softened their comments, saying the prepayment is just a consideration going forward, and that the company may not even enforce it.
Face it. The “pay to play” that Visteon wants is a price no one can afford.