The scale of restructuring at Delphi, and the acceleration of changes at General Motors that are accompanying it, are dramatic.
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They expose the long-term costs of General Motors’ strategy in the late 1990s, of floating off the bulk of its parts division as a separate business rather than selling the individual businesses and addressing its legacy issues plant by plant, as done by DaimlerChrysler in North America, or Renault, or currently Volkswagen, in Europe.
Despite losing almost $US1bn worth of General Motors’ contracts every year since its independence, Delphi is still uncompetitive on half of its current sales to General Motors – and General Motors reckons it is paying $2bn a year above market rates for the remaining business in North America.
General Motors and Delphi managers have protected each other and traditional structures to the point of endangering the future of both companies (to be fair to them it looked as if it was politically impossible to do otherwise) but the radical change that was always needed now finally appears to be coming.
A slimmed-down Delphi will still face enormous challenges. The businesses that the company wants to compete in are tough even by automotive standards. For example in air-conditioning it is competing with aggressive Japanese and Korean suppliers, a share-hungry Visteon and Behr in North America, and low-cost Valeo in Europe. This is at a time when the sector is facing significant investment requirements for new technologies.
The situation in wiring, another core business, has deteriorated over the last few years and is not much better. Even a thorough cost reduction process will still leave Delphi over-exposed to one of the current losers among the global OEMs. But at least the scale of the restructuring proposed – closing 21 out of 29 US plants – is of the right order. With a bit of luck it might mark a real turning point.
Edmund Chew, Editor, SupplierBusiness
