$29 Billion Baby

Dec. 21, 2004
Spun off from General Motors Corp., Delphi Automotive Systems is the highest-ranking new U.S. company on the IW 1000.

When you execute 11 strategic acquisitions or joint ventures in your first year as an independent company, the message is clear. Delphi Automotive Systems Corp. intends to create its own image -- quickly -- now that it is out from under the wing of its longtime corporate parent, General Motors Corp. (which, even without Delphi, is the world's largest public company). At the outset Delphi -- now the world's largest auto parts company -- made sure its 203,000 employees understood their critical role in the success of the newly independent company. A total of 15 million stock options or stock appreciation rights was granted to the Delphi workforce, and between 65% and 82% of the compensation of its top 100 executives was tied to company performance. As a result, everyone on the Delphi team "understands that the decisions we make and the actions we take each day impact Delphi, our shareholders, and ourselves," says J.T. Battenberg III, chairman, president, and CEO. The acquisitions strategy and compensation approach also underscore the resolve of the $29 billion, Troy, Mich., company to do things differently now that it is on its own. For example, with regard to acquisitions, "We now only have to look to see if something makes sense for Delphi, not for Delphi and GM," says Alan S. Dawes, chief financial officer at what is now the world's 48th-largest public corporation and the highest-debuting U.S. company on this year's IndustryWeek 1000. "We have set three objectives for our acquisitions," says Dawes. "We want to diversify our customer base; we want to add technologies that can fill in the gaps of what we don't have; and we want to make acquisitions that provide at least 12% return on net assets and don't dilute our earnings. And if we can't get into a market by ourselves, we will do it with others" through joint ventures, partnerships, or other alliances, he adds. To that end Delphi in 1999 acquired Lucas Diesel Systems, the world's second largest producer of diesel fuel-injection systems, as well as a major automobile wiring factory in China to serve the Asia/Pacific region. It also created an alliance with AlliedSignal Commercial Vehicle Systems Co. to make antilock brakes for the heavy-duty-truck market and formed joint ventures with an air-compressor company in Hungary and a seat-belt manufacturer in the Asia/Pacific region. Battenberg says that Delphi will continue that alliance pace: It will enter into a joint venture or make an acquisition about every five weeks in 2000. So far this year it has purchased an aftermarket products distributor in Europe, acquired a 40% stake in a Mexico suspension module manufacturer, and entered into partnerships with L.M. Ericsson Telephone Co. and Palm Inc. to supply information and entertainment products to automotive manufacturers. Using Delphi voice-recognition systems, drivers will be able to send or retrieve information from their Palm computing devices without taking their hands off the wheel. The strategic partnership with Ericsson is aimed at developing mobile Internet products for the automotive market -- including smart radios and rear-seat-entertainment products -- that can be updated with plug-and-play modules. Those deals have helped Delphi, which has 176 manufacturing plants in 37 countries, branch out into new markets and quickly reduce some of its dependence on GM. In its last four quarters, the percentage of its revenues from non-GM business has risen from 21.6% to 28.6.%, thanks to contracts with Ford Motor Co., Peugeot SA, Caterpillar Inc., Harley-Davidson Inc., Volkswagen AG, Fiat SpA, and Daewoo Motor Co. Ltd., to name a few. "We are discovering that we can leverage . . . the technologies we've already developed for cars and trucks" into products such as audio components, sensors, wiring assemblies, steering pumps, and hoses for the telecommunications, construction, agriculture, military, aerospace, and recreation markets, says Battenberg. The changes also are part of Delphi's efforts to transform itself from an auto component manufacturer into a new-economy manufacturer of electronically enhanced systems and modules for a variety of industries. "We are colocating our electronic software engineers with mechanical engineers to develop a more enhanced product," says Dawes. Such high-tech products -- now one-third of revenues -- will account for two-thirds by 2005, says Dawes, and will be integrated into products of all three of its business units: suspension, brake, drive-line, and steering products; heating and air-conditioning interior products; and electronics and mobile communication products. That latter sector is still the smallest of Delphi's three business units. But its growth rate in 1999 was more than double the company's overall growth rate, and its operating profit margin was 10.9% compared to 5.8% for Delphi overall. What's more, analysts expect sales of just one segment of that market -- the mobile multimedia products Delphi is developing with Palm and Ericsson -- to increase fivefold in 2000 to $200 million and grow by at least 30% annually for the next five years.

Delphi Automotive Systems Corp. At A Glance
Business: Auto parts
Headquarters: Troy, Mich.
CEO: J.T. Battenberg III
Employees: 203,000
1999 Revenue: $29.2 million
1999 Profit Margin: 3.7%
Best Practices: Lean-manufacturing initiatives and task teams meet monthly to share best practices from around the corporation in manufacturing, engineering, production control and logistics, information technology, personnel, finance, and communication.

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