Ford's Recall of Firestone Tires Puts Suppliers on Shaky Ground

Strategic Insights -

The recall of 6.5 million Firestone tires used primarily on the Ford Explorer has resulted in a significant blow to the profits of large parts suppliers such as Visteon Corp. and Lear Corp. Additionally, other suppliers like Johnson Controls Inc., ArvinMeritor Inc., Dana Corp., and BorgWarner Inc. are expected to suffer financial losses in the third quarter due to Ford's decision to idle three truck-assembly plants.

Key Takeaways:

  • Visteon Corp. estimates it has $2,500 to $3,000 in content per unit on the Ranger and Explorer, which would translate to $62.5 million to $75 million in lost revenue.
  • Lear Corp. forecasts its earnings in the third and fourth quarters will drop about 6 cents per share, resulting in a loss of about $16 million in sales due to the reduced production of Ford Explorers.
  • Johnson Controls Inc. is laying off about 100 people for two weeks at two plants in New Jersey and Wisconsin, and does not expect its earnings to be hurt by the shutdown.
  • Visteon Corp. says it was running high on overtime supplying to the idled plants, and "still assessing" the impact of the shutdown on its business.
  • Ford estimates that it will make up for about 10,000 Rangers in the final three months of the year, but will make 10,000 fewer Explorers.

Statistics:

  • 6.5 million: The number of Firestone tires recalled by Ford.
  • $16 million: The estimated loss in sales for Lear Corp. due to the reduced production of Ford Explorers.
  • $62.5 million to $75 million: The estimated lost revenue for Visteon Corp. due to the production slowdown.
  • 2,500 to 3,000 USD: The estimated content per unit for Visteon Corp. on the Ranger and Explorer.
  • 100: The number of people laid off by Johnson Controls Inc. at two plants in New Jersey and Wisconsin.

Sources:

  • "Visteon will be substantially affected," said Merrill Lynch auto analyst John Casesa.
  • "Obviously it will impact us some, but we aren't sure how much yet. We were running pretty high on overtime supplying to those plants, so we are still assessing the impact," said Denise Bither, Visteon director of global public relations.
  • "We don't expect a major impact for suppliers. It will be an inconvenience to them, but it shouldn't be a long-term financial problem for them," said Della DiPietro, Ford director of manufacturing communications.