Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  News  >  Economy & Forex  >  All News

News : Economy & Forex
Latest NewsCompaniesMarketsEconomy & ForexCommoditiesInterest RatesBusiness LeadersFinance ProfessionalsCalendarSectors 
All NewsEconomyCurrencies / ForexCryptocurrenciesEconomic EventsPress releases

Delphi Agrees to Sell Auto Air Conditioning Businesses

share with twitter share with LinkedIn share with facebook
share via e-mail
0
02/18/2015 | 07:51pm EST
By Jeff Bennett 

A decade ago, U.S. auto supplier Delphi Automotive employed 47,000 people in its home market, and its revenue--nearly $30 billion--topped the global car parts industry. Today, its U.S. workforce has shrunk to 5,000, aided by the shedding of 42 of the 47 factories it once ran here.

Spun off from General Motors Co. in the late 1990s, Delphi once sold everything from steering wheels to brake pads. Since emerging from bankruptcy in 2009, the company has slimmed down to concentrate on supplying systems to improve fuel economy, auto safety and self-driving technologies.

That focus will get even slimmer as Delphi has agreed to sell its lower margin automotive heating and cooling business to German competitor Mahle GmbH for more than $700 million, according to people familiar with the matter, a move that caps several years of refashioning the old-line U.S. parts maker to a more narrowly focused technology company.

Delphi also reached a separate deal to sell its Shanghai Delphi Automotive Air-Conditioning System Co. to Mahle although financial details weren't immediately clear, these people said. The deal for the China business likely will raise the total value.

The sale of Delphi's thermal systems operation, representing about $1.6 billion in annual sales, will include 13 manufacturing sites in eight countries employing about 6,700 full-time employees. Details of the sale could be announced as early as Thursday, these people said.

The divestiture is the latest in a series of moves that Delphi has taken to focus on higher margin products, including fuel cells and navigation systems, where it believes it can have a strategic advantage. Cash from the Mahle deal could further boost that portfolio, the people said.

After a four-year bankruptcy, Delphi return to the public market in 2011 and its shares have jumped, pushing its market value to $22.8 billion, nearly as large as electric-car maker Tesla Motors Inc. Its shares have more than tripled since the IPO. The stock was off six cents at $78.44 on Wednesday and jumped in after-hours trading to $79.90.

The deal comes just ahead of a leadership transition at Delphi. Rodney O'Neal, the auto supplier's longtime chief executive, is due to retire on March 1. His replacement, Kevin Clark, 52 years old, likely will use proceeds from the sale to further bulk up the company's now electronics-heavy product line.

A decade ago, proceeds from a similar transaction would likely have been earmarked for worker buyouts, pension payments or health-care obligations.

Delphi filed for bankruptcy in October 2005 just as America's biggest auto suppliers were struggling. Auto makers were squeezing for price concessions and the economy was headed toward a financial crisis. Since then, the top tier of parts makers have roared back. Companies like Visteon Corp., Lear Corp. and BorgWarner Inc. are posting big profits, returning billions to shareholders and expanding geographically.

Delphi is a proxy for the transformation. Where it once provided heating and air conditioning for most GM cars on the road, it now gets just 17% of its revenue from Detroit auto maker, compared with 76% when it was first spun off.

The remaining revenue is split between eight other auto makers ranging from Daimler AG to Volkswagen AG.

Earlier this month, Delphi posted a 15% jump in fourth-quarter profit, topping analysts' estimates. For the year, net rose to $1.44 billion on sales of $17 billion. The results underscore its newfound margin strength. In 2000, it generated a profit of $1.1 billion on sales of $29 billion on 119 products.

Delphi earns most of its money from products that help make engines more fuel efficient and vehicles capable of operating more autonomously. Cameras, sensors, emissions systems and safety equipment are staples of today's product line.

"We believe Delphi has potential to become one of a handful of global suppliers that can become so powerful that they can add more value to the car than the [auto maker]," said Adam Jonas, a Moran Stanley analyst.

In Vienna, Ohio, a factory spanning the length of two football fields churns out 2.1 billion electrical connectors annually for companies including GM and Tesla. Much of the work is done by unmanned robots called "froggers" scurrying among bins and rows of machines.

Six years ago, production of these parts was spread among this plant, another in Ohio and one in Mississippi. Today, the Vienna factory and two others in Mexico handle most of the work.

Delphi now concentrates on 33 different high-tech product lines ranging from diesel injection systems to active safety parts. It closed or sold its 86 other products ranging from steering wheels and bearings to batteries and brakes.

"We picked 33 out of 119 based on one rule--all divisions and all regions would carry their own weight and perform at the same high level, no excuses, no ifs or buts," Mr. O'Neal said in a recent interview. "Everything we picked was picked for a reason and each of them has to make money."

Today, fuel efficiency accounts for half of the company's sales with electronics another 30% and safety equipment 20%.

"We underwent a complete model redo: wall-to-wall, floor-to-ceiling and top-to-bottom, there was nothing that wasn't touched," Mr. O'Neal said. "Culturally, structurally, emotionally, you name it, it got banged on. All the sacred cows were turned into fantastic steaks."

"If these technologies aren't embraced like they think it will, that could be a huge problem," Morningstar Inc. auto-parts analyst Richard Hilgert said. "While auto makers have talked about adding more, adoption rates could be slower than expected and some products not adopted at all leaving the suppliers to hold the bag on research and development costs."

Mr. O'Neal and his successor, Mr. Clark, have said Delphi is flexible enough to roll with the punches.

But that flexibility has come at a price.

Its overall payroll has been trimmed to 117,000 from 211,000. It also managed to cut the hourly wage it was paying in the U.S. to between $14.50 and $18 from $27.

Delphi consolidated its North America campus in Troy, Mich. Employees there are now housed in two office buildings instead of three. The third building sits empty.

In Ohio, the company closed six plants and cut hundreds of workers. The 160 unionized workers who remain at its Plant 47 fight every day to remain competitive.

Rick Ames, 57, a manufacturing supervisor who has been a Delphi employee for 34 years, said the remaining staff "work every day to stay competitive."

For Mahle, the purchase is a strategic move to bolster its Behr GmbH & Co. KG business. Stuttgart-based Mahle took control of Behr--which makes heating and cooling systems--in May 2013 when it became the majority shareholder in the company. Behr is the fourth largest supplier in that thermal space followed by Delphi. Japanese parts maker Denso Corp. is the leader.

Delphi's thermal systems business provides heating and air conditioning systems to most global auto makers. It contributed $1.56 billion, or 9% of the company's overall sales last year.

Write to Jeff Bennett at jeff.bennett@wsj.com

Access Investor Kit for Daimler AG

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=DE0007100000

Access Investor Kit for Volkswagen AG

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=DE0007664005

Access Investor Kit for Volkswagen AG

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=DE0007664039

Access Investor Kit for BorgWarner, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US0997241064

Access Investor Kit for Daimler AG

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US2338251083

Access Investor Kit for General Motors Co.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US37045V1008

Access Investor Kit for Lear Corp.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US5218652049

Access Investor Kit for Volkswagen AG

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US9286623031

Stocks mentioned in the article
ChangeLast1st jan.
APTIV 0.42% 93.77 Delayed Quote.51.66%
DAIMLER AG 0.40% 49.455 Delayed Quote.7.30%
GENERAL MOTORS COMPANY 0.65% 35.54 Delayed Quote.5.56%
LEAR CORPORATION 3.19% 124.49 Delayed Quote.-1.81%
ONE STOP SYSTEMS, INC. -1.12% 1.76 Delayed Quote.-8.25%
TESLA INC. 1.67% 335.89 Delayed Quote.-0.73%
VOLKSWAGEN AG 0.95% 176.6 Delayed Quote.25.93%
share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news "Economy & Forex"
06:21pIMF Critic Tapped as Argentina's Economy Minister
DJ
05:52pChina and Mexico to hold high-level trade discussions next week
RE
05:42pFAA seeks $3.9 million fine from Boeing for defective parts on 737 NG planes
RE
05:22pSaudi energy minister talks OPEC+ unity, backs Aramco to soar
RE
05:21pGood news story goes beyond strong jobs -analyst
RE
05:18pUtilities Down As Investors Flee Safe Havens -- Utilities Roundup
DJ
05:16pNEWS HIGHLIGHTS : Top Global Markets News of the Day
DJ
05:16pNEWS HIGHLIGHTS : Top Company News of the Day
DJ
05:15pCommunications Services Up, But Traditional Carriers Lag, After Jobs Report - Communications Services Roundup
DJ
05:11pTech Up On November Jobs Report -- Tech Roundup
DJ
Latest news "Economy & Forex"