DELPHI 2015 Annual Report Download - page 28

Table of Contents
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We have established a worldwide design and manufacturing footprint with a regional service model that enables us to
efficiently and effectively serve our global customers from low cost countries. This regional model is structured primarily to
service the North American market from Mexico, the South American market from Brazil, the European market from Eastern
Europe and North Africa, and the Asia Pacific market from China. Our global scale and regional service model enables us to
engineer globally and execute regionally to serve the largest OEMs, which are seeking suppliers that can serve them on a
worldwide basis. Our footprint also enables us to adapt to the regional design variations the global OEMs require and serve the
emerging market OEMs.
Our Industry
The automotive parts industry provides components, systems, subsystems and modules to OEMs for the manufacture of
new vehicles, as well as to the aftermarket for use as replacement parts for current production and older vehicles. Overall, we
expect long-term growth of vehicle sales and production in the OEM market. In 2014 and 2015, the industry experienced
increased global customer sales and production schedules. While the North American and European economies strengthened in
2015, resulting in increased vehicle production in these regions, there has been a recent moderation in the level of economic
growth and an increase in market volatility in China, which has resulted in lower automotive production growth rates in China
than those previously experienced. Additionally, economic uncertainties have continued to persist in South America, resulting
in a decline of 19% in South American vehicle production in 2015, which follows a 17% decrease in that region in 2014.
Demand for automotive parts in the OEM market is generally a function of the number of new vehicles produced in response to
consumer demand, which is primarily driven by macro-economic factors such as credit availability, interest rates, fuel prices,
consumer confidence, employment and other trends. Although OEM demand is tied to actual vehicle production, participants in
the automotive parts industry also have the opportunity to grow through increasing product content per vehicle by further
penetrating business with existing customers and in existing markets, gaining new customers and increasing their presence in
global markets. We believe that as a company with a global presence and advanced technology, engineering, manufacturing and
customer support capabilities, we are well-positioned to benefit from these opportunities.
We believe that continuously increasing societal demands have created the three “mega-trends” that serve as the basis for
the next wave of market-driven automotive technology advancement. Our challenge is to continue developing leading edge
technology focused on addressing these mega-trends, and apply that technology toward products with sustainable margins that
enable our customers, both OEMs and others, to produce distinctive market-leading products. We have identified a core
portfolio of products that draw on our technical strengths and align with these mega-trends where we believe we can provide
differentiation to our automotive, commercial vehicle and aftermarket customers.
Safe. The first mega-trend, “Safe,” represents technologies aimed not just at protecting vehicle occupants when
a crash occurs, but those that actually proactively reduce the risk of a crash occurring. OEMs continue to focus on
improving occupant and pedestrian safety in order to meet increasingly stringent regulatory requirements in various
markets, such as a notice issued by the U.S. National Highway Traffic Safety Administration which updated its
five-star rating system to include automatic emergency braking systems as a recommended safety technology,
beginning with model year 2018. As a result, suppliers are focused on developing technologies aimed at protecting
vehicle occupants when a crash occurs, as well as advanced driver assistance systems that reduce driver distractions
and automated safety features that proactively mitigate the risk of a crash occurring. Examples of new and
alternative technologies that incorporate sophisticated detection and advanced software for collision avoidance
include lane departure warning systems, adaptive cruise control and automatic braking.
Green. The second mega-trend, “Green,” represents technologies designed to help reduce emissions, increase
fuel economy and minimize the environmental impact of vehicles. Green is a key mega-trend today because of the
convergence of several issues: climate change, volatility in oil prices, an increasing number of vehicles in use
worldwide and recent and pending regulation in the U.S. and overseas regarding fuel economy and carbon dioxide
emissions. OEMs continue to focus on improving fuel efficiency and reducing emissions in order to meet
increasingly stringent regulatory requirements in various markets. On a worldwide basis, the relevant authorities in
the European Union, the United States, China, India, Japan, Brazil, South Korea and Argentina have already
instituted regulations requiring further reductions in emissions and/or increased fuel economy through 2016. In
many cases, other authorities have initiated legislation or regulation that would further tighten the standards
through 2020 and beyond. Based on the current regulatory environment, we believe that OEMs, including those in
the U.S. and China, will be subject to requirements for even greater reductions in carbon dioxide ("CO2") emissions
over the next ten years. These standards will require meaningful innovation as OEMs and suppliers are forced to
find ways to improve engine management, electrical power consumption, vehicle weight and integration of
alternative powertrains (e.g., electric/hybrid propulsion). As a result, suppliers are developing innovations that
result in significant improvements in fuel economy, emissions and performance from gasoline and diesel internal
combustion engines, and permit engine downsizing without loss of performance. At the same time, suppliers are