Chinese auto parts maker Huayu Automotive to buy Visteon’s stake in their car-interiors JV and interests in other car-parts businesses for $1.25 billion in cash

August 13, 2013, 10:18 a.m. ET

Auto-Parts Maker Visteon to Receive $1.2 Billion as It Refocuses Its China Strategy

PRUDENCE HO And JEFF BENNETT

HONG KONG—Chinese auto parts maker Huayu Automotive Systems Co.600741.SH +10.05% agreed to buy Visteon Corp.’s VC +6.65% 50% stake in their car-interiors joint venture and interests in other car-parts businesses for $1.25 billion in cash. The sale highlights the continuing global expansion of Chinese auto parts makers. Wanxiang Group won U.S. government approval on Monday to complete its acquisition of advanced automotive battery maker A123 Systems Inc. The company paid $256.6 million for the business trumping a lower offer made by Milwaukee auto-parts manufacturer Johnson Controls Inc. JCI +0.07% Huayu, 60% owned by SAIC Motor Corp., 600104.SH +4.17% China’s largest domestic auto maker, is acquiring Visteon’s share of Yanfeng Visteon Automotive Trim Systems Co. The unit makes car-interior components such as dashboards and door panels, as well as low-end electronics./  Visteon said it would use most of the proceeds to buy back stock until the end of 2015 and its board of directors raised the authorization of Visteon’s remaining share repurchase program by $875 million to $1 billion.The sale by Visteon is one of several strategic moves by the Ford Motor Co.F -0.06% spinoff to reposition itself following its 2010 bankruptcy restructuring. Visteon Chief Executive Timothy D. Leuliette, who has turned around other auto parts makers, took over the top position last year pledging in part to sell its interiors business to focus on the more profitable electronics business. It is also reorganizing its climate-controls unit.

Visteon said it would set up a new joint venture with Huayu Automotive that will focus on vehicle electronics, which is Visteon’s current core business. Visteon will pay around $70 million to gain control of the new venture, Yanfeng Visteon Automotive Electronics Co.

“These transactions support our focus on our core climate and electronics businesses,” Mr. Leuliette said in a statement.

Visteon is one of the last of the big U.S. auto suppliers that have whittled down their interiors business or exited the segment all together.

Johnson Controls has said it wants to sell some low-margin auto-parts businesses. Analysts have said its $1.4 billion-a-year auto interiors business is a likely candidate.

“Because many components and systems used in car interiors have become more commoditized, the number of profitable products in the segment is diminishing,” said Stephen Dyer, a partner in the Shanghai office of management consulting firm A.T. Kearney.

Electronics—especially navigation, infotainment and electronic control systems—offer greater profit potential,” he said.

Much of car-interiors exodus occurred in early 2000 as competition and a move by auto makers to buy interior parts piecemeal rather than in a bundle eroded profit margins.

Lear Corp. LEA -0.63% was one of the first to jettison its interiors business turning control over to billionaire Wilbur Ross who has used the unit as a cornerstone to his now International Automotive Components Group. Mr. Ross intends to take that business public betting that the only way to survive in the interiors space is to be the biggest provider.

The change in the interiors business also wiped out others in early 2000. Collins & Aikman—a producer of carpets and other interior pieces—went into bankruptcy and was dissolved. Again, Mr. Ross picked up a piece of the company to help form his company.