updated 5/28/2009 3:33:07 PM ET 2009-05-28T19:33:07

Visteon Corp., the top auto parts supplier and former subsidiary of Ford Motor Co., has filed for bankruptcy protection as it struggles with a drop in sales to ailing automakers.

Ford — which buys Visteon's climate control, powertrain and an array of other components for its cars and trucks, said the company's filing hasn't disrupted the flow of parts to its assembly plants and it doesn't expect future interruptions, although it is monitoring the situation.

To help Visteon continue to supply it with parts, Ford said it will provide financing to support the company during the reorganization. A company spokesman declined to say how much money Ford would provide.

Visteon said along with the so-called debtor-in-possession financing from Ford, it expects to fund its operations with cash on hand and cash flows from operations. Visteon was spun off from Ford in 2000.

"Because Visteon is an important, preferred supplier to Ford, we have committed to providing financial support to help Visteon meet its business challenges," Tony Brown, Ford's head of global purchasing, said in a statement.

He said Ford will not be changing its "fundamental business relationship" with Visteon and has no plans to buy back its businesses or manufacturing plants.

Jim Gilles, automotive analyst for the consulting firm CSM Worldwide, said the financing was unlikely to prove a major burden for Ford.

"The reality of the situation is that Visteon still supplies a lot of parts" for Ford, Gilles said. "One way or another, Ford is going to have to pay."

Visteon filed in U.S. Bankruptcy Court for the District of Delaware. The company's Visteon UK Ltd. unit separately filed for bankruptcy protection last month and closed three British plants.

Chapter 11 of the Bankruptcy Code allows companies to stay in business and reorganize without the threat of creditor lawsuits. It does not mean liquidation.

"During the reorganization period, we will seek to address our capital structure and legacy costs that are not sustainable given the current economic environment," said Donald J. Stebbins, chairman and chief executive of Van Buren Township, Michigan-based Visteon.

Ford is biggest customer
Ford is Visteon's biggest customer, accounting for 31 percent of Visteon's first-quarter sales. Korean automakers Hyundai and Kia are the next biggest customers, accounting for a combined 25 percent of sales.

Visteon is the latest auto parts maker to file for bankruptcy protection as the industry copes with production cuts in the face of plunging automobile sales. It also comes a month after automaker Chrysler LLC filed for Chapter 11 protection. General Motors Corp. is likely to follow it after offering its bondholders new terms for debt-for-equity exchange if they agree not to protest a quick sale of the company.

GM has been heavily burdened by the bankruptcy of its former supplier, Delphi Corp., which filed for bankruptcy protection in 2005 and has yet to emerge. GM has sunk hundreds of millions of dollars into Delphi over the years to maintain its supply of parts. A tentative deal released this week between GM and its union calls for GM to take back five Delphi factories.

With GM now on the brink of a bankruptcy filing of its own, Delphi's future remains unclear.

Gilles said Ford is unlikely to find itself in the same situation. Visteon is smaller and more profitable than Delphi, he said. In addition, Ford's decision to buy back several Delphi factories in 2005 positioned the Delphi much better strategically.

"I think there's underlying value for Visteon," Gilles said. "It's just that they got caught up with everything else that's going on right now."

Visteon also filed a request with the bankruptcy court to keep serving customers and paying suppliers and employees. The company has facilities in 27 countries and employs approximately 31,000 people.

The company had total liabilities of $3.96 billion and total assets of $4.56 billion as of March 31. Cash and short-term investments totaled $625 million.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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