Delphi in Trouble

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Case Details:

Case Code : BSTR189
Case Length : 20 Pages
Pages Period : 1995-2005
Organization : Delphi Corporation.
Pub Date : 2005
Teaching Note :Not Available
Countries : US
Themes: Failure of Strategy
Industry : Auto and Ancillaries

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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GM Spins Off Delphi

In the 1970s, many foreign automobile manufacturers, including several from Japan entered the US. Initially, they sold small, fuel efficient and low cost cars which were imported. Later some of them like Honda and Toyota established their manufacturing facilities in the country. The oil crisis in 1973 made US customers, who were using big cars, to shift to smaller Japanese cars which were more fuel efficient. Gradually, manufacturers such as Honda and Toyota started offering cars even in the luxury segment and started capturing the market share of American manufacturers like GM and Ford...

Life After the Spin Off

On June 09, 1999, Delphi declared its first quarterly dividend on $0.01 par value common stock of $0.07 per share. Battenberg said, "The dividend is in line with what had been indicated in our prospectus and represents our commitment to provide value to our shareholders." Though GM continued to be Delphi's major customer, Delphi tried to improve its business with non-GM manufacturers as well. Since February 1999, Delphi bagged 680 new business contracts from leading automotive and non-automotive companies throughout the world. Some of Delphi's contracts with non-GM customers included - US$ 550 million long-term contract with Navistar International, MAN Group and two other OEMs, a US$ 35 million contract with Daewoo International Corporation and a US$ 20 million contract with VW...

The Problems Begin

In March 2001, Delphi announced a worldwide restructuring program to cope with the decrease in the number of vehicles manufactured. The restructuring included consolidations, sell-offs and closure of nine of its plants, and reduction of its workforce by 11,500 members at 40 plants. Out of these nine plants, three were located in the US. Under this restructuring program, Delphi sold of its non-performing businesses amounting to nearly US$ 900 million. Delphi laid off more than 4,000 temporary employees between December 2000...

Pension Liabilities Begin to Haunt

George Miller, a Senior Democrat on the Committee on Education and the Workforce, Pension Benefit Guarantee Corporation (PGBC) revealed that the unfunded pension liabilities for private companies had increased from US$ 26 billion in 2001 to record level of US$ 111 billion in 2002. He said, "The implications of such massive shortfalls in pension funds are staggering, for pensioners, taxpayers, and for the private companies themselves." The prime reasons for this were the defined-benefit pension plans adopted by the US companies in the 1950s and then the huge gamble taken by the US companies during the stock market boom in the 1990s...

Excerpts Contd... >>

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