Wednesday, November 2, 2005

Bill Pugliano / Getty Images Under its makeover strategy, Delphi would unload its massive Flint East facility in an effort to move away from its heavy reliance on GM.

Delphi outlines 'ruthless' makeover

Confidential memo calls for closing 5 electronics plants, including one in Flint.

By Brett Clanton and Bill Vlasic / The Detroit News

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Delphi Corp. is studying a sweeping plan to remake its Electronics & Safety division by shedding U.S. factories -- including its massive Flint East facility -- shutting technical centers and possibly buying rival Motorola Corp.'s automotive unit, according to an internal company document.

In a confidential document outlining a plan code-named "Northstar," Delphi cites the restructuring of its Electronics & Safety unit as a cornerstone of its long-range effort to reorganize in Chapter 11 bankruptcy.

The document, a copy of which was obtained by The Detroit News, lays out a draft of Delphi's plan to grow one of its core divisions even as it abandons several money-losing product lines and closes plants.

In its drive for "global dominance" of the auto electronics and safety markets, Delphi will pursue "aggressive cost reduction via product exits, site consolidation, and legacy labor cost reduction," the document said.

Moreover, the auto parts giant is committed to "execute ruthless portfolio management" by focusing on "more winners, more exits."

Key components of the plan include the "exits" of five manufacturing plants in Michigan, Indiana, Wisconsin, Ohio and Arizona, and the "potential exits" of product lines ranging from anti-lock brakes to ignition systems.

The document also identifies "Motorola Automotive" as an acquisition target. The cell phone maker has reportedly been shopping its auto electronics operations that generated $1.7 billion in sales last year.

A Delphi spokeswoman said Tuesday that the document, which carries the forward-looking date of Nov. 9, is a draft of possible options for the Electronics & Safety division, which accounts for $5.8 billion of Delphi's annual sales of about $28 billion. The document appears to be an upcoming presentation that will be made by Beth Schwarting, Delphi's general director of sales and marketing for the Electronics & Safety division.

"We are aware that a confidential draft document was apparently released publicly without authorization," said Karen Healy of Delphi. "It is a draft, and it does not necessarily reflect current plans."

Healy said that "lots of options are under consideration" as Troy-based Delphi looks to restructure its operations in the aftermath of becoming the largest U.S industrial company to file for bankruptcy.

She noted that any restructuring plans need to be approved by the U.S. Bankruptcy Court in New York before they can be implemented.

In its Oct. 8 bankruptcy filing, Delphi cited assets of $16.6 billion and liabilities of $21 billion. Delphi Chairman Robert S. "Steve" Miller has said that the company expects to close, sell or consolidate an unspecified number of U.S. plants to become profitable.

The "Northstar" plan identifies five U.S. plants for "exit" -- Flint East; Kokomo (Ind.) Plant 9; Milwaukee, Wis.; Vandalia, Ohio; and Tucson, Ariz. Also on the list are plants in Ashimori, Japan; and Liverpool, England.

The Flint East plant employs about 3,400 workers. Delphi stopped production at it Flint West plant last year.

The plan also calls for reducing the Electronics & Safety division's technical centers from 23 to 16, including eliminating the tech centers in Flint and Westfield, Ind.

Among the "product line potential exits" are ignition systems, air meters, anti-lock brakes, steering controllers, suspension components and instrumentation products. While those businesses account for an estimated $131 million in revenues, they are projected to lose nearly $20 million in 2006, according to the document.

The Northstar plan also identifies "product and technology synergies" with Motorola's auto unit that makes components for vehicle navigation and safety systems.

A Motorola spokeswoman declined to comment Tuesday on whether Delphi is in talks to buy the unit. A September report in the Wall Street Journal said that Motorola has retained investment banker J.P. Morgan Chase & Co. to advise it.

"We're considering that rumor and speculation," said Sue Frederick of Motorola. "It's really just business as usual here."

While Delphi's Electronics & Safety division represents about one-fifth of Delphi's current operations, the Northstar document identifies it as a critical part of the company's overall future.

The plan projects revenues in the unit to grow from $5.8 million in 2006 to $8.5 billion by 2010. A summary page says the goal is to "grow (Delphi's) No. 1 market position to global dominance."

The document includes a "vision" of a Wall Street Journal headline in 2010: "Delphi Transforms #1 Electronics Market Position to Global Market Dominance While Restoring Top Rank Earnings."

As part of the transformation, Delphi expects to move away from its heavy reliance on business from General Motors Corp., its biggest customer and former parent.

GM contracts today account for 45.5 percent of revenues at Delphi's Electronics & Safety division. But the division expects its GM business to fall to 35.3 percent by 2010, with the balance coming from other U.S. and foreign automakers, according to the document. Business with surging Korean automaker Hyundai Motor Co. is expected to be a key driver of growth in coming years.

Delphi also predicts that acquisitions will help it to leverage its strength in the auto electronics sector and fill gaps in product offerings.

But the firm may find it difficult to make acquisitions while in bankruptcy because it would require approval of the court and creditors who are owed money by Delphi.

"You just don't see it very often because of all the impediments to doing a deal that way," said Van Conway, partner with Conway MacKenzie & Dunleavy in Birmingham. But if all parties agree the deal is good for the company, there is nothing preventing them from approving it.

The Northstar document is surfacing at a time when Delphi and its labor unions are in tense negotiations over a controversial proposal that would radically reduce the wages and benefits of the supplier's 33,000 U.S. hourly workers.

The leadership of the United Auto Workers, which represents 24,000 Delphi workers, and officials from Delphi's plant-based locals will gather in Detroit today to discuss the proposal, which demands wage cuts to $9 an hour, down from $27 today. The proposal would make workers pay more for health care and give Delphi power to close plants at will.

If the union does not accept some reduction in labor costs by mid-December, Delphi said it will ask the bankruptcy court to reject its labor contracts in a move that is likely to provoke a strike. Yet the Northstar plan appears to spell trouble for several Delphi plants regardless of the outcome of the negotiations.

Delphi's Plant 9 in Kokomo is on the short list of factories slated to be exited by 2010. The facility has been rumored as a possible target for closing for years. Work has steadily moved out, employment has dwindled and it has become more warehouse than manufacturing facility.

Ed Overstreet, 44, a tool and die mold maker at the plant, said he had not heard concrete details to shutter the factory, only the same rumors that have been circling the plant for years. That's why he is dubious about a new plan to close the facility.

"We hear so much on and off about crap that's going on," he said. "We've just gotten to the point where we don't believe it until it happens."

You can reach Bill Vlasic at (313) 222-2152 or bvlasic@detnews.com.