Automotive supplier Visteon Corp, which long has been operating under the specter of bankruptcy, now faces new problems with the financial faltering of two key customers – Chrysler LLC and General Motors Corp.

Although the supplier still derives the majority of its business from former parent Ford Motor Co., which to date has not taken government funds to keep afloat, Visteon has sought to diversify its customer base over the years.

But that strategy now is backfiring somewhat, as most Chrysler and GM plants are shuttered while the first OEM enters Chapter 11 and the second struggles with government-mandated restructuring, leaving Visteon to leverage new customers and shore up its balance sheet to stay out of bankruptcy court, itself.

GM and Chrysler, combined, account for about 7% of the supplier’s revenue base, Visteon spokesman Jim Fisher says. “It had been around 5% for quite a while. But when the (Dodge) Ram came on stream, that increased it a bit,” he says, noting the auto makers’ plant shutdowns will prove painful.

“It’s important to note the percentage of our revenue related to them,” he says. “We’re impacted whenever there’s a change in a customer’s production schedule.”

Chrysler in court filings has said it wants to keep Visteon as a supplier when it emerges from bankruptcy. The auto maker owes the company $25.6 million, which it has asked the court for permission to pay.

In an otherwise gloomy economic climate, the Van Buren Twp., MI-based supplier has had some positive developments.

In March, Visteon made a $16 million interest payment on $453 million in bonds due in 2014. Many analysts had predicted the company would be unable to meet that obligation, which likely would have pushed it into bankruptcy.

While Visteon’s common stock has been suspended from the New York Stock Exchange since March 6 because of low trading levels, the supplier has reached agreement with its lenders for temporary waivers and amendments to its primary secured credit facilities. Additionally, it is working with customers to address liquidity and capital requirements.

These discussions led to Ford’s announcement last week it was assuming a $163 million secured credit facility from Visteon lenders. Under terms of the agreement with Ford, Visteon must maintain $264 million in cash and cash equivalents.

“We’re still in active discussions with customers and lenders; this is one element of our effort to address our liquidity and capital requirements,” Fisher says of the transaction.

Speculation among analysts suggests Ford is less motivated in helping Visteon than in protecting its own interests. In the event of a Visteon bankruptcy, Ford becomes a secured creditor and would have a prominent voice in court proceedings.

Visteon has seen some progress on the financial front, reporting net income of $2 million in first-quarter 2009. It also was able to secure $240 million in new business in the quarter. That’s a significant improvement from 2008’s net loss of $663 million on sales of $9.5 billion and 2007’s net loss of $372 million on sales of $11.3 billion. Fisher says the company finished the first quarter with cash reserves of $767 million, of which $163 million is classified as “restricted cash under waivers we offered.” While this pales in comparison with like-2008, when the company had $1.8 billion in cash on hand, he says the first-quarter performance was encouraging.

However, most of the profit resulted from a one-time accounting gain from placing three U.K. plants – in Basildon, Belfast and Enfield – in administration, the British equivalent of bankruptcy.

“Despite extensive restructuring efforts, the U.K plants have continued to incur substantial losses. Regrettably, having exhausted all options, the Visteon U.K. Ltd board of directors had no alternative but to file for administration,” Donald J. Stebbins, Visteon chairman and CEO, said following the filing.

In other parts of the world, Fisher says most of Visteon’s customers are in decent financial health.

Thirty-one percent of revenue comes from Ford, while Hyundai Motor Co. Ltd. and Kia Motors Corp. accounted for 25% of the supplier’s first-quarter sales. The remaining business includes the Renault SA-Nissan Motor Co. Ltd. alliance (7%), PSA Peugeot Citroen (6%) and “others” (24%), Fisher says.

To be heavily entrenched as the largest supplier to Ford – at a time when it is significantly more stable than rivals GM and Chrysler – is a competitive advantage. But since spinning off from Ford in June 2000, Visteon’s considerable size has been problematic, and the supplier has spent most of its existence selling off, closing down or finding other clever ways to dispose of operations.

In October 2005, Visteon signed on to a plan to give back 23 unprofitable plants and research facilities to Ford. The entity is known as Automotive Components Holdings LLC, and Ford has negotiated the sale or closure of all the facilities except five located in Indianapolis; Sandusky, OH; and Milan, Saline and Plymouth, MI.

Ford planned to finish the ACH deals by the end of 2008, but the failing economy severely limited the pool of potential buyers. Today, there is no timetable to sell or discard the five remaining plants, says ACH spokesman Eric Mitchell.

Visteon had 82,000 employees in 23 countries in 2000 and sales of $19.5 billion. Today, 31,000 employees in 27 countries generate less than half that revenue.

Although Visteon has avoided taking government aid, the U.S. Treasury Dept. in March announced plans to provide up to $5 billion in financing to help Detroit Three suppliers. Most of the money is being routed through GM and Chrysler to their parts makers.

Treasury says the money provides the supply sector with the confidence to continue shipping parts, pay an estimated 500,000 employees and enable companies to continue operations, no matter what happens to OEM customers.

As a rule, suppliers used to get paid within 45-60 days of customer receivables and then borrow against those commitments to pay employees and their vendors. But the frozen credit markets ended that practice. Under the new program, suppliers can sell the receivable to the government at a modest discount for an immediate cash infusion.

But after carefully studying the nuances of the government funding program, Visteon has decided to opt out, Fisher says.

“We see (the program) as a positive step for the industry, but not a program that would directly benefit Visteon because of our customer base,” he says. “When we look at what would be eligible for that and did an assessment, we didn’t see it as a benefit to Visteon.”

While the company remains mum about the possibility of declaring bankruptcy in the near future, most industry analysts predict a Chapter 11 filing is all but inevitable.

“We think defaults from Visteon are unavoidable,” Mark Oline, an analyst with Fitch Ratings, tells Ward’s. “It’s unlikely the company will be able to generate sufficient cash for operating and financial obligations through 2009.”

Oline points to Visteon’s failure in the U.K. as a harbinger of things to come at its other operations. “Europe is just another factor effect of the same problem,” he says. “(Visteon) is unable to garner new business from OEMs. They are simply not willing at this point to commit new platforms to Visteon.”

If the company were to seek bankruptcy protection, the filing most likely would not hinder the production schedules of most major auto makers, says Oline, noting “most have had time to prepare. (Visteon’s) financial issues are no secret.”

Steven Wybo, managing director at the Birmingham, MI-based turnaround firm of Conway MacKenzie & Dunleavy, says the uncertain futures of GM and Chrysler are Visteon’s largest concern.

“Not only (is Visteon) faced with zero production for Chrysler, but probably zero from GM for a period of time,” Wybo tells Ward’s. “We’re already in a market that went from 16 million (annual U.S. light-vehicle sales) to 9 million or 10 million. And now (Visteon) is faced with uncertainty (regarding) some of their largest customers.”

For the company to survive, it must renegotiate terms with its lenders, he says. Otherwise Ford may have to step in with additional assistance to prevent production stoppages that would result from a Visteon bankruptcy.

“Ford might not have a choice,” Wybo says. “We’re not talking about one or two plants where Ford could pick up their tools over a weekend. We’re talking hundreds of millions of dollars in equipment and thousands of tools.”

But Ford could avoid having to bail out Visteon if the federal government intervenes, auto analyst Erich Merkle contends.

“The government is going to have to pump more money into suppliers now that Chrysler is bankrupt and GM is likely to (declare bankruptcy),” he says. “Otherwise, there will be a collapse in auto production, and quite possibly all manufacturing, because (companies such as Visteon) supply other manufacturers.”