Greater competition from Asian firms has hit US carmakers

Ford has offered a $1bn (�546m) lifeline in cash and debt relief to its former subsidiary.

The US car giant plans to put 13 of the factories in a holding company before trying to sell them off.

Car parts makers have been squeezed by cutbacks at US carmakers, which have been battling against falling sales.

Under the agreement, Ford will provide Visteon with $800m to wipe out its pension obligations to former Ford workers, $550m to cover restructuring and a $250m loan.

This agreement brings us closer to a true 'arms length' relationship with our largest supplier Don Leclair, Ford Check Ford's share price Check Visteon's share price

Ford will temporarily take control of 20 Visteon plants in the US and four in Mexico.

"This is a milestone agreement which, upon completion, will create a more competitive business structure for Visteon in the United States and remove a number of structural barriers to the company's long-term sustainable success," Mike Johnston, Visteon's chairman-elect and chief executive officer said.

"Visteon will have a more competitive North American structure, a more balanced global customer portfolio and a healthy regional mix."

Hard times

Earlier this year, Visteon posted a loss of $118m for the January to March period, compared to a $20m profit during the same time last year.

The group, which was spun off from Ford in 2000, still relies on the carmaker for 70% of its business.

Ford, the second largest US car group, has been battling against tough competition from foreign rivals. It revealed sales had fallen 5.1% in April, while net profits at the group fell almost 40% to $1.2bn in the first three months of 2005.

The slide in Ford's fortunes prompted US credit rating agency Standard and Poor's to downgrade Ford's bonds to junk - such a rating suggests that a company is more likely to default on its debt.

As car sales slump car parts makers are feeling the pressure, with one major manufacturer - Collins and Aikman - filing for bankruptcy protection last week.

Shake-up

Last year, Visteon announced it would be restructuring its ties with Ford and would also carry out other cuts in an effort to restructure its losses.

The agreement will result in Ford facing one-off costs of between $450m and $650m in 2005 and a further $300m to $500m between 2005 and 2009.

However, the carmaker estimates the move will trigger annual savings of around $600m to $700m by the end of the decade.

"This agreement brings us closer to a true 'arms length' relationship with our largest supplier," Don Leclair, Ford's chief financial officer and executive vice president said.

He added that the move would allow the company to "diversify" its supply base, giving it access to more competitively priced parts and services.

So far the proposals have been backed by union leaders, however local members also need to approve them.