Howes: Delphi split aiming to reckon technology, value
A dozen years ago, the bankruptcy of what’s now Delphi Automotive PLC signaled the beginning of a recapitalization that has been transforming the Detroit auto industry ever since.
On Tuesday, the mega-supplier created and then jettisoned by General Motors Co. will disappear. It is becoming two independent companies, each legally headquartered in the United Kingdom, that are angling to exploit transportation mega-trends in connectivity, autonomy, electrification and clean engines.
Aptiv PLC, operated from offices in Troy, will continue Delphi’s efforts in high-value electronics, smart mobility and autonomous driving and be listed on the New York Stock Exchange under the symbol APTV. Delphi Technologies PLC, based in London, will focus on next-generation powertrains, after-market sales and trade as DLPH.
Their path to the historic split symbolizes the reinvention sweeping the automakers and suppliers that defined Detroit’s first century in the auto industry: make hard decisions and adapt to change or cease to exist. And Delphi’s 12-year journey to this point demonstrates the human costs and financial rewards in roughly equal measure.
“What Delphi said is, ‘We can’t be a commodity business,’ ” said David Cole, chairman emeritus of the Ann Arbor-based Center for Automotive Research. “ ‘We need to be a tech business.’ If you’re the low-cost commodity you’ll survive. If you’re not, you’d better be at the leading edge of technology.
“It’s a different world. They’re dealing with technology that is really critical. The key with Delphi is to not become static at the leading edge. If you’re not at the leading edge, you get into trouble in a hurry. It’s a very different company. The name is the same, but that’s about it.”
Only one of the names is similar, actually. Aptiv will be led by current Delphi Automotive PLC CEO Kevin Clark, a Livonia native who played hockey at Michigan State University, earned an MBA there and honed his financial chops inside Chrysler Corp.’s finance department and, later, private equity.
Aptiv is expected to close this year with revenue of $12.5 billion and 145,000 employees worldwide, only 4,600 of them in the United States and 1,000 of those in Michigan. Delphi Technologies, with revenue just under $5 billion, will employ 20,000 at operations in 24 countries.
Automakers facing enormous technical challenges, relentless cost pressure, encroachment by Silicon Valley and consumer expectations shaped by their newest electronic devices want suppliers to offer tailored, robust technological solutions — not the one-stop shopping epitomized by yesterday’s Delphi.
“The need to be deep and narrow in focus is more beneficial for our customers and more profitable for Delphi” and its successor companies, Clark said in an interview Monday, explaining the rationale for the split. “We need to be out front from a technology standpoint.
“The industry has changed quite a bit over the last five years. It’s going to change even more over the next five years. Any view that there wasn’t technology in the automotive industry — whether it was what was going into the car or how the car was manufactured — was, is completely inaccurate.”
And it’s likely to become even more so over time. Delphi, GM and Lear Corp., to name three old Detroit names, are demonstrating impressive knacks for developing leading technologies and deploying them in competitive ways. The result: increasingly positive reactions from current and would-be investors.
More than two years ago, Morgan Stanley called Delphi “one of a handful of global suppliers that can become so powerful that they can add more value to the car than” an automaker “itself, in an autonomous world.” Splitting the company aims to deepen technical capability and build value at the same time.
The numbers are hard to ignore. On a consolidated basis, Delphi would be on track to close this year with an estimated $17 billion in revenue, up from $11.8 billion in 2010 less than a year after its emergence from Chapter 11 bankruptcy. Operating margins are estimated to hit 13.4 percent this year, up from 8.5 percent in 2010.
Cash flow doubled to nearly $1.9 billion annually over the same period. And the share price? A winner by just about any standard, reflecting investors’ increasingly clear understanding that the one-time maker of gas caps, wiring harnesses and all sorts of commodity components has transformed itself into a value-added supplier of leading technologies with a diverse array of customers.
On Nov. 11, 2011, a little more than six years after declaring bankruptcy and rocking the auto industry, shares in Delphi opened trading at $22 a share. On Monday, shares closed at $104.30, a gain of nearly five times that far outstrips the performance of former parent GM over roughly the same time.
That transformation, however, came at a steep cost. Communities across the country, especially in the industrial Midwest, lost plants. The restructuring effectively eliminated the United Auto Workers from Delphi’s U.S. hourly workforce. The emergence from bankruptcy, engineered by President Obama’s auto task force, cut salaried pensions even as it preserved those for union members.
The new Delphi no longer was headquartered in Michigan, its ancestral home. And the successor companies won’t be either, reminders that the realities of global capital flows and national corporate tax rates continue to blur the lines separating domestic and foreign companies.
Left behind is a distinct aftertaste — bitter for those who bore the brunt of a pitiless restructuring and sweet for those who could, and did, reap the rewards of the company Delphi is becoming with each successive quarter.
It’s a story made in Detroit: Reinventing the future requires reckoning with the past and embracing the world as it is, not as it was a generation or more ago. In a town that desperately wants to win, that’s a game for losers.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.