Delphi Automotive Systems Corporation

1888–2000

Delphi Automotive Systems Corporation is the world's largest and most diversified manufacturer of automobile components. It was spun off in the mid-1990s from the world's largest manufacturer of automobiles, General Motors (GM), which still accounted for 70 percent of its business in 2000, although it counts all of the world's manufacturers of light vehicles among its clients. The vast enterprise, occupying 190 factories in 31 countries, claims an invention a day, a new product or process every week. Sixty percent of the company's workforce is based outside North America.

Origins

Delphi Automotive traces as its earliest antecedent the New Departure Bell Company, founded in Bristol, Connecticut, in 1888 to manufacture the earliest known doorbell-ringing device. The company's talent for innovation soon extended to transportation, with the 1897 introduction of the first bicycle coaster brake.

Other Delphi predecessors have been involved in automobile lighting since 1906 and manufacturing wooden auto bodies beginning in 1908. In 1908, Albert Champion, who had been making spark plugs in America since 1899, joined Buick Motor Co. to make spark plugs in the AC Spark Plug Division, which was acquired by General Motors founder Billy Durant in 1909. Durant acquired Dayton Engineering Laboratories, which would become Delco, in 1914.

The self-starting engine, introduced in 1912 by Charles F. ("Boss") Kettering and first installed on Cadillac cars, freed motorists from having to hand crank their engines. Frank and Perry Remy (dynamos and magnetos), Packard, Harrison, and Alfred P. Sloan (GM president) are other automotive pioneers whose stories form part of Delphi's earliest beginnings.

Other pre-Delphi innovations included the Ring Terminal, developed in 1930; the first car radio (1936); the first radio with mechanical push-button presets (1939); and safety power steering (1951). Delphi's predecessors revolutionized auto air conditioning in 1954 by collecting all components under the hood for the first time. The first production airbag system debuted in 1973. Rack and pinion steering followed the next year.

Sales were $19.3 billion in 1991, but the unit posted significant losses.

1991–1998

Grouping Operations in 1991

In 1991, General Motors organized its many separate parts operations--spread across some 200 plants--into its Automotive Components Group (ACG). Sales were $19.3 billion in 1991, but the unit posted significant losses. GM officials decided to sell off noncore businesses, a process that would take three years to complete. Operations that were sold were those that made vacuum pumps, radiator caps, small motors and actuators, starter motors, generators, wiring, rear axles, and magnets--these together accounted for about $3.5 billion in sales. Lighting, chassis, environmental systems, batteries, engine management, and seating operations were retained.

These divestments were the first stage of an historic shift away from vertical integration at General Motors, a company that had once produced even the smallest parts for its cars. GM lagged rivals Ford and Chrysler in making the change to lower cost, outside suppliers, which typically were not unionized.

A new group of managers was placed in charge of ACG in 1992. The new CEO, J.T. Battenberg, III, had risen through a number of engineering positions at GM. Battenberg led the restructuring, persuaded his superiors to create a new headquarters building in the Detroit suburbs, and came up with the group's new name. ACG was renamed Delphi Automotive in January 1995 to help establish its independent identity in the industry. Delphi had six divisions at the time. Sales approached $27 billion for the year.

Delphi began implementing a Japanese-style lean manufacturing system in 1996. The company also began to transform itself into a global supplier. Asia and the Pacific Rim were seen as a critical region for the company's planned growth. China was planning to double its market, requiring up to three million vehicles per year. Manufacturers such as Daewoo Group of South Korea also were expanding capacity. Delphi had several major joint ventures in the region. By the end of 1997, Delphi had invested $300 million on plants in the People's Republic of China, where GM had a major automaking venture (as did Volkswagen). The company's technology, such as that in airbags, was increasingly in demand. Almost 85 percent of Delphi's Asian sales were coming from clients other than GM. Delphi would be hit hard by the currency devaluations that attended the 1998 Asian financial crisis, but would remain committed to its investment in the region. Delphi also had four wholly owned plants in India.

On the other side of the world, Delphi Europe also was able to win a large proportion of business--47 percent--from clients other than GM and its subsidiaries. The unit had 38,000 employees in 63 plants. GM was then accounting for 80 percent of Delphi's global revenues.

1997–2000

GM's Delco Electronics Corporation was transferred to Delphi in late 1997 as part of a transaction in which GM spun off its defense electronics business, Hughes Electronics Corporation, which had operated Delco for the previous 11 years.

Going Public in 1999

GM conducted an initial public offering (IPO) of 17.7 percent of Delphi's shares in February 1999, which raised $1.7 billion. The IPO had been delayed about a year while Delco was being combined with Delphi. By this time, Delphi had spent six years preparing for its independence, selling off 14 lines of business with sales of $6 billion a year, and closing or selling 62 unprofitable plants.

When GM completed Delphi's spinoff in May 1999, the newly independent company was twice as large as Visteon Corporation, the parts maker that was being spun off from Ford. Revenues were about $28.5 billion in 1998, when the company posted a net loss of $93 million.

Delphi, which had 200,000 employees, had its share of strikes. Union workers protested the loss of jobs and benefits likely to come from outsourcing and globalization; the United Auto Workers had always opposed Delphi's separation from GM, believing this would lead to wage concessions.

Delphi was focusing its research on products that were capital-intensive, rather than labor-intensive. This included electric power steering and a "PC Car" project to bring multimedia services into vehicles. High-tech products accounted for a third of company revenues in 2000.

1999–2005

Delphi sought to expand its core businesses via acquisition soon after its spinoff. Several companies were acquired in the first year, including TRW Inc.'s Lucas Diesel parts unit, bought for $871 million in November 1999. Delphi also bought a wiring harness plant in Asia and entered a number of joint ventures. A joint venture with Palm Inc. was creating a way for drivers to control their Palm Pilots via voice recognition systems.

In July 2000, Delphi announced plans to dismiss 900 manufacturing workers in Europe as part of a restructuring there. The cuts amounted to about 2 percent of its European workforce. The next March, the company announced plans to reduce its worldwide workforce by 11,500 jobs, or 5.5 percent, mostly through attrition. The automobile industry as a whole was experiencing a slowdown. Sales slipped a bit to $29.1 billion in 2000. Slowing auto sales in the fall of 2001 resulted in Delphi's customers making fewer cars and ordering fewer parts.

While looking to expand its business apart from its old parent, Delphi also risked having GM assign its business elsewhere. DENSO Corporation, Toyota's parts spinoff firm, quadrupled its business with GM in four years, attaining sales of $1 billion with the automaker by 2001. Delphi was scheduled to lose its right of last refusal for replacement business in North America with GM on January 1, 2002.

Delphi was aiming to grow its nonautomotive revenues to $700 million by 2005. Sales to the communications, military, aerospace, agriculture, and construction markets stood at $422 million in 1999.