Ford UK (Duty of Care to Visteon Pensioners)

Mike Freer Excerpts

Tuesday 4th December 2012 Westminster Hall

[Mike Freer (Finchley and Golders Green) (Con)]

I have not spoken under your chairmanship before, Mr Caton, so I am looking forward to today’s debate. I would like to thank my colleagues; as you can see, quite a number have turned up in support of this important debate on an issue facing the Visteon pensioners that has been going on for some time.

In understanding the situation, it is important to appreciate what Visteon was and what happened to the short-changed Visteon pensioners. Visteon was the global automotive component operation of the Ford Motor Company. Most of us will have heard of Ford, but few will have heard of Visteon. In June 2000, Visteon was spun off from Ford as part of its efforts to reduce supply chain costs. Importantly, the separation agreement provided, as part of the spin-off, that those spun off would benefit from mirrored terms and conditions and “lifetime protection”. Further to that being offered to former Ford Visteon employees, employees were advised that the Ford European works council agreement—the FEWC—guarantees

“that Visteon employees transferring their past service benefits to the Visteon Fund will receive the same benefits as at Ford, both now and in the future for all their pensionable service.”

That important point was written into the agreement. Beyond that, employees were encouraged to join the Visteon scheme and transfer their pension with statements such as

“Your accrued pension rights will be protected”,

that it was in employees’ best interests to transfer, and that pension benefits are guaranteed.

It is important to remember that Visteon was not a wholly arm’s length company after the spin-off. It remained dependent on Ford for 90% of its business, and the employees who transferred from Ford to Visteon received no new contracts. The company operated out of buildings and facilities that retained the Ford brand, and personnel cards carried by Visteon employees remained branded “Ford”. When employees qualified for a long-service dinner, the invitation had a Ford letterhead, and when employees turned up for their long-service award, the award also had the Ford emblem.

Clearly, Ford knew that it had to reduce its operating costs, which in itself is not a crime, but perhaps what it went on to do is bordering on one. There is a clear suspicion that Visteon was being set up to fail, and that pension liabilities were being deliberately detached from the main company.

[Mr Lee Scott (Ilford North) (Con)]

Does my hon. Friend agree that whatever may happen in coming months, Ford should just do the right thing and honour everything that it said, as he has described? It should be responsible to its former employees.

[Mike Freer]

My hon. Friend makes a powerful point. Anyone who has gone through the documents that the Visteon pensioners have been able to secure will see that there is a clear audit trail showing that Ford knew exactly what it was doing. It gave guarantees that it is now seeking to renege on.

[Mr Charles Walker (Broxbourne) (Con)]

Is it not the case that in our pursuit of this matter, along with my hon. Friend the Member for South Basildon and East Thurrock (Stephen Metcalfe), Ford has sent some very reasonable people to meet us, but it continues to behave in a very unreasonable way?

[Mike Freer]

My hon. Friend makes another good point. We have seen over the years that when companies are seeking to renege on their pension responsibilities, they seek to delay through the courts. I suspect that many companies hope that the pensioners will die before the case is heard, and I agree that it is time that Ford met its responsibilities.

I return to the issue of Visteon being set up to fail. The Visteon UK pension plan was created 12 months after the spin-off from Ford, with a transfer value of just £230 million. That transfer value left an immediate deficit of £49 million. That deficit was not communicated to the employees. It looks as though Ford was simply shunting off its liabilities and cleaning up its main balance sheet. It could be argued that a viable spin-off company could have traded its way out, and that it could have made employee and employer contributions to rectify the deficit. Could Visteon have traded its pension fund out of trouble? Possibly—I am not an actuary, so I cannot comment.

[Mr John Baron (Basildon and Billericay) (Con)]

I congratulate my hon. Friend on securing the debate. Ford certainly needs to answer key questions, and this will be the subject of a court case. However, we have invited other players in this sad affair, such as the Visteon management and the trustees at the time—key players when it came to the transfer—to come and meet us as a group, and they have refused. Does my hon. Friend agree that that should be considered as a negative on their part?

[Mike Freer]

My hon. Friend makes a good point. I do not see why the former management and trustees should not come and talk to us and explain why they believed that the actions they took were correct. If they feel those actions were right, they should come and defend them. I also correct him, because although I thank him for his congratulations on securing the debate, the true congratulations should go to our hon. Friend the Member for South Basildon and East Thurrock (Stephen Metcalfe), who has been diligent and persistent in pursuing this case on behalf of Visteon pensioners. We should give credit where credit is due in this House.

To return to whether Visteon could be a going concern and therefore trade its way out of pension deficit, in the month before Visteon was spun off, documents submitted to the Securities and Exchange Commission identified significant risks, but those risks were not communicated to the employees. Ford said that it was committed to ensuring Visteon’s viability by using Visteon to supply its products. Fair enough, but Ford then implemented a unilateral price reduction and started sourcing products from newer and cheaper alternative providers.

The European works agreement, apparently, was supposed to have transferred all the benefits, but it also tied Visteon into the UK wages and benefits that the employees were entitled to. Although we can argue that the benefits of the pension scheme have not been transferred, Visteon was, of course, saddled with the legacy labour and overhead costs, and, as I have mentioned, Ford then unilaterally dropped the prices it was willing to pay. The cost base of the spin-off remained high, but Visteon’s income was cut at a stroke by Ford.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

I congratulate the hon. Gentleman on securing the debate, and I also want to put on record my congratulations on the work done by the hon. Members for South Basildon and East Thurrock (Stephen Metcalfe) and for Swansea West (Geraint Davies) in leading the all-party group on this subject. Is it not the fact that suspicions are deepened by Visteon suffering an operating loss for every year that it existed? It never made a profit and its total committed debts by the time it ceased to operate were $955 million.

[Mike Freer]

The hon. Gentleman makes a good point. A company being transferred away from its parent as a loss maker is, in itself, not the issue, but it is whether the management, on both sides of the spin-off, genuinely believed that the business recovery plan was viable. I shall go on to refer to a comment made by the then chief executive of Visteon about the viability of the business post spin-off. The comment suggests that they knew exactly what they were doing, and that this was simply an exercise of dumping a liability while cleaning up the main Ford balance sheet.

[Dr Hywel Francis (Aberavon) (Lab)]

I congratulate the hon. Gentleman on securing the debate. One key point that was made to me by trade unions at the time, 10 years ago, was that there was no serious engagement with the unions and the work force in new product development. The company was continually reminded of the need to do so, but refused.

[Mike Freer]

The hon. Gentleman makes a very good point, but it is worse than just that there was no engagement. All the evidence suggests that Ford Motor Company was engaged in underhand sourcing of new products from other suppliers at cheaper rates. Indeed, those new suppliers were asked—nay, forced—to sign confidentiality agreements. Therefore, although Ford knew that Visteon was not in a position to develop new products, it was actively sourcing new products from other, cheaper suppliers without telling Visteon or certainly without telling the work force of Visteon. I think that that is duplicitous. Visteon was immediately at a competitive disadvantage compared with other suppliers, not least in relation to securing new business from Ford. Of course, as it was a spin-off, one hope would have been that it would secure new business, but having inherited the overhead of the Ford system, it was unable to do so. As the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) pointed out, Visteon’s trading losses were close to $1 billion before it went into administration in March 2009. It made a loss every single year.

The key issue is this: did Ford know what it was doing? This is where I want to refer to a comment made by Tim Leuliette, the chief executive of Visteon Corporation. He was interviewed by the Detroit Free Press in November 2012. He was asked:

“Did…Visteon…have a chance”

when it was spun off? He said quite clearly:

“No…The labor cost issues, and the burden and the overhead was…so out of line with reality that it was almost comical. It just wasn’t going to work. And it didn’t work.”

If the chief executive of Visteon knew that its business plan could not recover the company, I doubt that Ford did not know that as well.

[Mr Charles Walker]

Is this not an example of Ford, a four-letter company, behaving in a four-letter way, and is it not a disgrace?

[Mike Freer]

My hon. Friend is tempting me into unparliamentary language. I will resist the temptation, but I of course do share the sentiment behind his intervention.

I think that the chief executive summed the position up in one or two sentences. I cannot believe that Ford Motor Company and the management of Visteon did not know exactly what they were doing. It was simply a dumping-of-liabilities exercise.

In April 2009, matters got worse. The Visteon UK pension fund required support from the Pension Protection Fund. Some Visteon pensioners have already seen their pensions reduced by 45%. In February 2012, the protection fund took on the responsibility for paying members of the scheme. As I have already said, it seems that Ford was simply cleaning house—shunting off a loss-making division and its pension liabilities. The new business was not viable, and it knew that the pension fund was in deficit. The full facts and the full risks were hidden from the employees. What was worse in my view was that false promises were made to encourage employees to transfer their pensions.

I used to work for one of the high street banks, in the regulated side of the bank. In fact, I sold pensions. If I had made to my customers the comments that Ford Motor Company made, I would not only have been struck off as a regulated person by the Financial Services Authority, I suspect that I would have been prosecuted for mis-selling.

[Rebecca Harris (Castle Point) (Con)]

Does my hon. Friend agree that this is the crux of the matter—that the employees were persuaded that their pensions would be secure not by some strange private equity financiers or some faceless spivs, but by their long-term employers, their trusted and respected employers, Ford? Does he agree that the moral responsibility for this therefore remains with Ford?

[Mike Freer]

My hon. Friend hits the nail on the head. Let me refer to an extract from the Ford personnel communication of April 2000. It clearly states:

“Your accrued pension rights will be protected.”

Minutes of a Ford pension meeting with union representatives clearly state that it is in the interests of the employees to transfer—that the pension benefits will be the same now as in the future. It says that in black and white. I could not have got away with that as a regulated person working for a high street bank and I do not see why Ford should get away with it, either. Ford’s sleight of hand has left pensioners without the pension to which they were entitled. It looks suspiciously like they deliberately misled their employees if not mis-sold the pension transfer.

Mr Chavda is my constituent. I see him on a regular basis when I visit Homebase in my constituency, where he is now working to top up his pension. He wrote to me and said that

“it is Ford that should be liable for the losses many people are suffering as a result of the company transfer. I worked for many years for Ford and I feel cheated that after contributing in the pension scheme for many years…I am now receiving less than the amount I am entitled to.”

Mr Chavda is not alone. Ford should keep its promises and meet its responsibilities. Today’s debate is about asking Ford to do the right thing. I am sure that my hon. Friends in this place will support me.