DELPHI 2011 Annual Report Download - page 12

Table of Contents
Supply Relationships with Our Customers
We typically supply products to our OEM customers through purchase orders, which are generally governed by general terms and conditions
established by each OEM. Although the terms and conditions vary from customer to customer, they typically contemplate a relationship under which our
customers place orders for their requirements of specific components supplied for particular vehicles. These relationships typically extend over the life of the
related vehicle. Prices are negotiated with respect to each purchase order, which may be subject to adjustments under certain circumstances, such as
commodity or foreign exchange escalation/de-escalation clauses or for cost reductions achieved by us. In most instances our OEM customers agree to
purchase their requirements for specific products but are not required to purchase any minimum amount of products from us. The terms and conditions
typically provide that we are subject to a warranty on the products supplied; in most cases, the duration of such warranty is coterminous with the warranty
offered by the OEM to the end-user of the vehicle. We may also be obligated to share in all or a part of recall costs if the OEM recalls its vehicles for defects
attributable to our products.
Individual purchase orders are terminable for cause or non-performance and, in most cases, upon our insolvency and certain change of control events.
In addition, many of our OEM customers have the option to terminate for convenience, which permits our customers to impose pressure on pricing during the
life of the vehicle program, and have the ability to issue purchase contracts for less than the duration of the vehicle program, which potentially reduces our
profit margins and increases the risk of our losing future sales under those purchase contracts. Additionally, our largest customer, GM, expressly reserves a
right to terminate for competitiveness on certain of our long-term supply contracts. We manufacture and ship based on customer release schedules, normally
provided on a weekly basis, which can vary due to cyclical automobile production or dealer inventory levels.
Although customer programs typically extend to future periods, and although there is an expectation that we will supply certain levels of OEM
production during such future periods, customer agreements including applicable terms and conditions do not necessarily constitute firm orders. Firm orders
are generally limited to specific and authorized customer purchase order releases placed with our manufacturing and distribution centers for actual production
and order fulfillment. Firm orders are typically fulfilled as promptly as possible from the conversion of available raw materials, sub-components and work-in-
process inventory for OEM orders and from current on-hand finished goods inventory for aftermarket orders. The dollar amount of such purchase order
releases on hand and not processed at any point in time is not believed to be significant based upon the timeframe involved.
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