Governing the corporations – lessons to be learned from Visteon UK
Posted on 28 April 2010
Bethan Jenkins led a short debate on the Visteon pensions crisis today in the Senedd. This is what she said:
I’m going to start this debate with a story.
One day, a mouse chanced upon a farmer and his wife setting a mousetrap. Very alarmed, he immediately ran off to tell the other farm animals.
The chicken raised her head and said: “Mr Mouse, I can tell this is a grave concern to you, but I can’t be bothered by it.”
The pig sympathized, but said: “I am so very sorry, Mr Mouse, but there is nothing I can do about it.”
The cow said, “Mr Mouse, I’m sorry for you, but it’s no skin off my nose.”
So, the mouse returned to the farmhouse, dejected, to face the farmer’s mousetrap alone. That very night, the whole farm woke to the sound of it snapping shut.
The farmer’s wife got there first, but in the darkness she couldn’t see it was a venomous snake with just its tail caught in the trap, and it bit her.
When she returned from hospital, she still had a fever. The farmer knew the way to treat it was with chicken soup, so he grabbed his hatchet and slaughtered the main ingredient in the farmyard.
But his wife’s sickness persisted. Friends and neighbours came to sit with her. To feed them, the farmer butchered the pig.
Sadly, this care wasn’t enough, and the farmer’s much loved wife died. So many people came for her funeral that the farmer had the cow slaughtered to provide a feast for them.
The moral of this tale? When someone is in trouble, it could mean that we’re ALL in trouble.
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This story was sent to me by one of the men from Swansea who once worked at the Visteon automotive factory. One of the 700 workers from that city, and one of over 3,000 men and women across the UK who are fighting for what is theirs, and what has been taken from them in one of the most shameful moments of callous corporate chicanery in modern British industrial history.
Because of what has happened to those pensioners, I believe that the time has come to decide – as an Assembly, as a country and across the Western world as a whole – whether Visteon is the last time we stand for such breathtaking free market disregard for working people, or whether the way in which these men and women have been sold down the river by one of the world’s most recognisable and loved brands becomes just the first of many, many more depressing episodes.
In short, we need to decide where to draw the line, how to take back the power from these corporations, and reaffirm our persistence in providing the duty of care we have promised to the people we represent.
This Assembly may not be aware of recent developments concerning the Visteon pensioners. The Visteon Corporation – parent company to Visteon UK – is seeking Chapter 11 reorganisation in the US, which will effectively allow it to shake off much of its debt and start anew.
While this was being heard in the courts, the Visteon UK pension fund trustees, with the support of the Pension Protection Fund, entered a claim for around £350million – the amount by which the Visteon UK pension fund was underfunded.
In the US, Ford assisted Visteon in meeting its pension obligations in order to allow the company to emerge from bankruptcy. Visteon Corporation lawyers have issued a near-250 page objection to the UK claim that can be whittled down to the following points:
- Allowing the claim would have a dramatic impact on the corporation’s ability to pay other creditors – and UK pensioners would receive their money first;
- That under UK law, the corporation has no obligation to the Visteon UK pension plan because it is no longer its sponsor;
- That any judgement made in the UK against Visteon is unenforceable, because it cuts its ties with the UK when it went bust;
- Lastly, that the Visteon Corporation subsidised its UK operation “to the tune of almost $800million” during the nine years it was in existence, and received no benefit in kind.
I want to concentrate on the final point by looking at the history of the Visteon Corporation.
Faced, at the turn of the millennium, with mounting component prices and with ever-more available cheap labour in emerging economies, Ford spun its parts division out of the main business.
Until Visteon was formed in 2000, components had been paid for in what was referred to by Ford as ‘wooden dollars’ – the transfer cost between Ford divisions which was built into the price of the car. Now, however, it had created an internal market. Visteon was Ford’s main supplier and supplied only Ford in the first year. Visteon workers – including the 3,500 based in the UK – were given iron-cast guarantees by Ford that their pension plans and terms would be transferred over to Visteon and mirrored by the new business. All of this is a matter of record. Ford finalised with trade unions a clear agreement on the transfer as part of the Ford European Works Council.
What only became apparent much later on was how Ford had effectively set up Visteon to fail from the start. It insisted that its labour costs were locked into the transfer agreement, but Ford had committed Visteon to matching competitive prices on all its product range within five years.
This is known as ‘the China price’. Suppliers are told to get their prices down to those of emerging economies and the Third World – where there are no final salary pension schemes, just appalling pay and even worse conditions – or lose the trade.
Visteon ended up selling its products to Ford for 30% less than it had expected to. By 2006, Visteon UK’s costs for materials, labour and overheads were 113.7% of revenues. In its nine years of existence, Visteon UK never made a profit. Instead, it lost $955million – or $500,000 every working day Visteon UK operated.
From reading the objection, you might surmise that Visteon UK was a basket case in isolation. Not so. In 2005, Visteon offloaded 17 unprofitable plants and six offices – many of them in the US (although Ford yesterday announced it is investing $32 million in a plant Visteon handed back to it). The following year, Visteon delisted from the New York Stock Exchange after its share price dropped to two cents.
Not all of this was Ford’s fault. Pensions at Ford were 120% funded, although when this moved from Ford to Visteon, it dropped to just 80%. It took Visteon three years to start contributing. In addition, Visteon UK allowed many long-serving former Ford employees to retire early – presumably so it could employ new staff on lower wages and less advantageous entitlements.
This meant that by March 31, 2008 – a year before Visteon went bust and fired its workforce with six minutes’ notice – the UK pension scheme had 3,131 members and just 618 contributors, a ratio of 0.2 active to one retired, compared with 11 to one just six years before.
Of course, the Visteon Corporation received benefits in kind, despite what it claims. It couldn’t manufacture a particular driveshaft at any plant on earth other than Swansea. It had tried, and failed. That’s the real benefit of a highly skilled and properly remunerated workforce – not that either Visteon or Ford seemed to care.
Sensing that the game was up, the two colluded in what was known as Project Kennedy – duplicate resourcing and stockpiling so that Visteon UK could be closed without any disruption to Ford’s output. It is worth noting that even though over 500 men were made redundant on March 31 last year, Ford lost not one single day of production.
The expertise and benefits it claimed not to have received from the UK were hived off to a new business, Visteon Engineering Services, with a new pension plan. It is here, at the company’s headquarters in Chelmsford, that you will find Visteon UK’s former senior officers, the architects and executioners of a plan which, while not illegal, was certainly duplicitous and morally inexcusable, seeking as it did to deceive men and women who had never done anything other than work hard for many years for Ford and Visteon.
If the judge in the US decides to refuse Visteon Corporation’s objections and winds up the company, it is quite possible that production at Ford would be considerably disrupted, to the point where it might well be more sensible for it to put its hands up and agree to sponsor the Visteon UK pension fund, as it has already done so for US Visteon workers. The cost for doing so would be limited to around £15 million per year.
This step would also avoid possible legal action by Unite, the Visteon pensioners’ union, which has apparently agreed to take the corporation to court to demonstrate that it reneged on pension guarantees when it spun Visteon out of its core business.
That would be the easy route. So far, Ford and Visteon remain trenchant in their opinion that they have done everything that they could to support Visteon UK pensioners, and no doubt they will have to be dragged kicking and screaming into court, too. Ford continues to describe the situation as “unfortunate”. Losing a button is unfortunate – being robbed of a lifetime pension after such clear commitments from an employer like Ford is a tragedy, and a tragedy affecting all the employees that transferred to Visteon.
It’s hard to follow Ford’s thinking. I can’t pretend I understand the company’s spending priorities, but only yesterday it reported quarter 1 profits of $2.3bn for 2010, a six-year high. Its shares are at a five-year high. It plans to increase production by 9% this year, and expects to remain profitable throughout the rest of this year.
Sponsoring the UK Visteon pension fund would not amount to even one percent of its quarterly profits.
At the present time, the Visteon pension scheme is being assessed for entry into the Government’s pension ‘rescue’ process, The Pension Protection Fund. The Visteon management may have seen the failure of the pension fund as simply something to be picked up by the PPF and may therefore have acted with less care towards it. The pensions regulator is investigating.
The overriding concern for Swansea Visteon employees is the long term security of the PPF as payments are already as much as 40% lower than the Ford Visteon Scheme. Those payments could be reduced at any time, or the fund could be closed altogether.
But there is a wider question over how corporations take advantage of schemes for employment, and can be compelled to fulfil their obligations when they close factories.
And this is an issue for this Assembly. Pensions are a matter for the UK government, while the trustees, the PPF and Unite are doing what they can to seek redress for these workers. I have to say that I haven’t seen much from the Government – from the Welsh Secretary nor the Pension Secretary – that convinces me that it is at the pensions regulator’s back over Visteon. Sure, we’ve had a few letters fly about, and a number of robust denials, particularly from Peter Hain, that he is doing little to help the pensioners. But you don’t sense the urgency – the prioritising – from UK Government ministers.
This has become a bit of an issue for me, because ministers here rightly say that they have no relevant devolved powers. They have asked their UK counterparts to take up the issue, but there is only so much leading to water that the Welsh Government can do.
However, there is a wider debate to be had about what kind of company we want here in Wales. Of course we want the Fords of this world to come to Wales. Such companies provide highly-skilled, well-paid work that filters out into the wider Welsh economy – albeit too often on a sliding scale.
We need to get past the myth that local suppliers do well out of such big companies. Ford in Bridgend sources most if not all of its parts abroad. This is crucial because, if we are to have a grants structure that awards funding to companies that come to Wales, it should be paramount that those businesses continue to benefit our economy over a meaningful period, that they become drivers through the use of our money, that those benefits continue to ripple further outwards.
Of course, none of us can guess future economic movement, and in giving grants we are taking the same kinds of risks as those in the private sector. But we must be mindful of the long term. And we must ensure that we look past the prestigious name and examine instead the track record of these blue chip corporations and decide whether they can bring sustainable advantage to the Welsh economy, or if they are simply benefitting themselves in the short term.
To do anything else would only assist in concentrating the wealth in the hands of a very small group of executives. Executives that very rarely live in or care about Wales.
They are not our concern. We are charged with the welfare of our constituents. Can we really shrug our shoulders and allow former workers in Wales – men and women who have retired – to sell their retirement homes and return to the workplace?
Can we really stand by and leave them to the possibility of many uncertain years ahead, when they are at the time of their lives when they should be enjoying the fruits of their labours?
Should we not do all we can when we have workers, some of whom only spent six months with Visteon after 40 years with Ford, that now have nothing?
And can we really allow our economy to be played like a Stradivarius by callous opportunists who take what they can and then expect the Welsh Government – and, by extension, the Welsh people – to sweep up their mess?
Bethan Jenkins AM was recently invited to appear at the Chwarae Teg conference to mark International Womens Day, and speak about the people who have inspired her.
