Most of the struggling business units lumped into Delphi’s Automotive Holdings Group appear to have little chance of recovery and, with pressure mounting to dispose of troubled operations inherited from General Motors, Delphi is beginning to take more urgent measures.
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Fixing the non-performing assets is one of Delphi’s biggest challenges, said chairman J.T Battenberg in an interview with SupplierBusiness.com.
“The real challenge is to get those non-performing assets…taken care of, so we can get them behind us,” said Battenberg. “The growth part of the company, which represents 85% of Delphi is continuing to grow at very nice rates, but we’ve got to get (Automotive Holdings Group) resolved.”
In January, Delphi executive James Bertrand will relinquish his dual role as president of Delphi’s Safety & Interior Systems operation and president of the Automotive Holdings Group to focus solely on the latter.
The Automotive Holdings Group was formed last January as Delphi sought to place units deeply under water in a more focused management structure.
Pulling the loss making units – which mainly suffer from mature product portfolios in declining markets – out of the existing Delphi structure was also seen as beneficial to the good performers.
In the first nine months of 2003 the Automotive Holdings Group had sales of $2.27 billion, of which $1.38 billion went to GM. Operating losses totalled $456 million, up from a $259 million loss in the same 2002 period. The negative 20.1% operating margin in the nine-month period underscores Battenberg’s concern.
Bertrand, a former GM executive who served at GM Europe and in Asia-Pacific, expects Automotive Holdings Group sales to be just over $US2.5 billion in 2003. But he says revenue will decline in 2004. Despite escalating losses, he cites progress in fixing the group’s performance. Bertrand says the losses are growing as reductions in structural costs lag behind overall business downsizing.
“There are job security provisions that introduce some friction in terms of our ability to right-size our structural costs,” he says. “That’s really the biggest challenge that we face.
“In terms of delivery performance and quality, the vast majority of sites [in the Automotive Holdings Group] have really shown a dramatic improvement this year,” he says. “We’re now starting to work on the cost issues.”
Progress maybe, but certain conclusions can be drawn. For all the businesses placed in the Automotive Holdings Group, the trip will almost certainly prove to be one way.
Bertrand hopes that some can graduate back to the mainstream Delphi divisions. But for the vast majority, achieving Delphi’s corporate target of 12.5% return on net assets appears nearly impossible, even for businesses with low capital intensity. This decline can only be managed in co-operation with agreement of key unions, notably the UAW and IUE. Both have given some ground recently. But many plants that would face certain closure in a non-unionised environment will probably linger on, racking up further losses in the process.
Bertrand says Delphi must work within these constraints.
“Our real challenge is to work on a co-operative basis with the unions and encourage those people that it makes sense for to flow back to GM plants or leave, especially those sites where we’ve seen a decline in the book of business.”
The message is clear — the portfolio of under-performing businesses will take time to turn around. For most a managed decline until closure appears the most likely outcome.
SupplierBusiness.com
