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EXHIBIT 10.3.1
[FORD LOGO]
Lisa Klein Ford Motor Company
Executive Director One American Road
Vehicle Procurement Operations Dearborn, Michigan
48126-2798
March 31, 2000
Mr. Dan Coulson
Chief Financial Officer
Visteon Corporation
Auto Club Drive
Dearborn, Michigan 48126
Dear Dan:
The purpose of this letter is to confirm certain understandings reached by
Ford Motor Company (Ford) and Visteon Corporation ("Visteon") regarding a price
reduction and productivity improvements to be implemented by Visteon in
accordance with the Purchase and Supply Agreement ("Purchase and Supply
Agreement") dated January 1, 2000.
Effective January 1, 2000, Ford and Visteon agree that Visteon will
deliver a one-time price reduction equal to five percent (5%) to competitively
align Visteon with other Ford suppliers which has been calculated as a result of
a recently completed analysis of competitiveness. In addition, in connection
with Visteon's on-going productivity commitment, Visteon has agreed to a three
and one-half percent (3.5%) price reduction that is consistent with the amount
of annual productivity that Ford expects from its other major Tier 1 suppliers.
The parties acknowledge that reductions to individual commodity prices may
differ, subject to the mutual agreement of the parties, to achieve the overall
reduction. This price reduction shall apply to existing prices for components in
production as of the Effective Date under Existing Agreements, as defined in the
Purchase and Supply Agreement. In addition a productivity price reduction factor
to be mutually agreed by the parties annually shall be effective for all
Existing Agreements and all New Business Agreements that are executed after the
Effective Date on January 1, 2001 which productivity factor shall be applied to
components in production as of each anniversary thereof through and including
January 1, 2003. In October of each year, the productivity price reduction
factor will be evaluated, and if appropriate, adjusted upward or downward, for
productivity competitiveness based on the competitive market basket (as further
described on Appendix I) of productivity reductions obtained by Ford from its
suppliers that are competitors of Visteon. Further, Visteon will use its best
efforts to develop commercially viable design cost reductions of approximately
one and one half to two and one half percent (1.5%-2.5%) annually and Ford will
fully cooperate with Visteon in such efforts and consider in good faith the
implementation of such design cost reductions.
Visteon and Ford will work together in good faith to continuously identify
opportunities to further improve cost and quality and will share such
information with each other in a timely manner consistent with current practice
of Ford's other Tier 1 suppliers. Ford and Visteon will review market conditions
and their impact on these objectives annually.
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Please indicate your concurrence with the foregoing by signing below.
Very truly yours,
FORD MOTOR COMPANY
/s/ Lisa Klein
Concur:
VISTEON CORPORATION
By: /s/ Dan R. Coulson
-----------------------
Dan R. Coulson
Chief Financial Officer
Visteon Corporation
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Appendix 1
Market Basket Formula and Process
Application
1) This Market Basket Formula and Process will be used pursuant to Purchase
and Supply Agreement and Pricing Letter between Visteon and Ford to
calculate pricing adjustments for the 2001, 2002 and 2003 calendar years.
All Commodities sold to Ford by Visteon will be covered by this agreement.
2) Only Commodities in which Visteon represents less than 90% of the total
Ford buy will qualify for the market basket study. Those Commodities sold
to Ford by Visteon that constitute 90% or more of the Ford buy for that
Commodity will receive a price adjustment equal to the weighted average of
the market basket study.
Formula
1) The market basket analysis will be conducted on a regional basis
(independently for North American and Europe) by Commodity.
2) The Ford Frozen Turnover will be the computing base for calculations. For
purposes of the Market Basket Formula, the Ford Frozen Turnover Rate is
defined as the Ford volume and mix assumptions established each year by
Ford on which it bases its financial and budget objectives. Commodity
classifications will be based on Ford's commodity-code groupings Ford will
review the turnover base with Visteon, including commodity code
classification annually. and reasonable revisions to the classifications
suggested by Visteon will be considered, provided they are supported by
Ford's commodity-code structure.
3) The competitive supply base used for each commodity will be comprised of
the two largest non-Visteon suppliers. Revisions to this formula (e.g.,
Stampings) may be made only upon mutual agreement of the parties.
4) In conformity with the manner in which Ford treats the rest of its Tier 1
suppliers, the price changes will reflect non-design productivity.
5) The revenue base used to apply the price change will exclude any material
that Ford buys or is indexed, and will exclude all ESTA (Target Agreement)
parts. Price changes calculated pursuant this formula will be effective
retroactive to January 1 for each calendar year in which the change is
calculated.
6) Visteon has the right to have an independent third party (recommend PWC)
verify all market basket data each year, including productivity amounts.
Such verification shall be completed prior to implementation of the
settlement process described below. Visteon and Ford will each bear
one-half of the cost of any independent verification.
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Process (Conducted independently for N.A. and Europe)
1) During the 1st Quarter of each year, for administrative purposes only, Ford
will input a percentage price change into Ford's price files (effective
retroactive to January 1 of that year) to represent a placeholder amount
for expected supply-base non-design productivity. Texturing will be agreed
with Visteon.
2) Prior to Dec. 1 of each year Ford and Visteon will verify, including
independent audit if so requested by Visteon, and consense on market basket
price change versus placeholder amount (including agreed texturing).
3) Prior to December 31 of each year -In the event that the placeholder amount
is greater than the amount determined by the market basket analysis,
multiplied by the actual volume of that Commodity purchased by Ford as of
the date of the analysis (annualized), Ford will reimburse Visteon the
difference. In the event that the placeholder amount is less than the
amount determined by the market basket analysis multiplied by the actual
volume of that Commodity purchased by Ford as of the date of the analysis
(annualized), Visteon will reimburse Ford the difference. Payment shall be
made within 30 days of the reconciliation.
4) By December 31 of each year (if possible) -- Ford Purchasing and Visteon
Marketing and Sales representatives will agree on the need for and amount
of any commodity texturing for the following year, including adjustments to
the base identified from the current year (see process step 3 above).
Within this timeframe, Ford Buyers and Visteon will have the opportunity to
consider further texturing of the agreement within the commodities.
March 31, 2000
