DELPHI 2015 Annual Report Download - page 39

Table of Contents
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manufacturing operations, technical centers and other infrastructure to support anticipated growth in those regions. If we are
unable to deepen existing and develop additional customer relationships in this region, we may not only fail to realize expected
rates of return on our existing investments, but we may incur losses on such investments and be unable to timely redeploy the
invested capital to take advantage of other markets, potentially resulting in lost market share to our competitors. Our results
will also suffer if these regions do not grow as quickly as we anticipate.
Our business in China is subject to aggressive competition and is sensitive to economic and market conditions.
Maintaining a strong position in the Chinese market is a key component of our global growth strategy. The automotive
supply market in China is highly competitive, with competition from many of the largest global manufacturers and numerous
smaller domestic manufacturers. As the size of the Chinese market continues to increase over the long term, we anticipate that
additional competitors, both international and domestic, will seek to enter the Chinese market and that existing market
participants will act aggressively to increase their market share. Increased competition may result in price reductions, reduced
margins and our inability to gain or hold market share. Additionally, 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. Although automotive production in China increased by 4% in 2015 as compared to
2014, and is expected to increase by an additional 4% in 2016, this represents a reduction from the overall level of long-term
automotive market growth in the country. Our business in China is sensitive to economic and market conditions that drive
automotive sales volumes in China and may be impacted if there are reductions in vehicle demand in China. If we are unable to
maintain our position in the Chinese market or if vehicle sales in China decrease or do not continue to increase, our business
and financial results could be materially adversely affected.
Disruptions in the supply of raw materials and other supplies that we and our customers use in our products may
adversely affect our profitability.
We and our customers use a broad range of materials and supplies, including copper and other metals, petroleum-based
resins, chemicals, electronic components and semiconductors. A significant disruption in the supply of these materials for any
reason could decrease our production and shipping levels, which could materially increase our operating costs and materially
decrease our profit margins.
We, as with other component manufacturers in the automotive industry, ship products to our customers’ vehicle assembly
plants throughout the world so they are delivered on a “just-in-time” basis in order to maintain low inventory levels. Our
suppliers also use a similar method. However, this “just-in-time” method makes the logistics supply chain in our industry very
complex and very vulnerable to disruptions.
Such disruptions could be caused by any one of a myriad of potential problems, such as closures of one of our or our
suppliers’ plants or critical manufacturing lines due to strikes, mechanical breakdowns, electrical outages, fires, explosions or
political upheaval, as well as logistical complications due to weather, global climate change, volcanic eruptions, or other natural
or nuclear disasters, mechanical failures, delayed customs processing and more. Additionally, as we grow in low cost countries,
the risk for such disruptions is heightened. The lack of even a small single subcomponent necessary to manufacture one of our
products, for whatever reason, could force us to cease production, even for a prolonged period. Similarly, a potential quality
issue could force us to halt deliveries while we validate the products. Even where products are ready to be shipped, or have
been shipped, delays may arise before they reach our customer. Our customers may halt or delay their production for the same
reason if one of their other suppliers fails to deliver necessary components. This may cause our customers, in turn to suspend
their orders, or instruct us to suspend delivery, of our products, which may adversely affect our financial performance.
When we fail to make timely deliveries in accordance with our contractual obligations, we generally have to absorb our
own costs for identifying and solving the “root cause” problem as well as expeditiously producing replacement components or
products. Generally, we must also carry the costs associated with “catching up,” such as overtime and premium freight.
Additionally, if we are the cause for a customer being forced to halt production, the customer may seek to recoup all of its
losses and expenses from us. These losses and expenses could be significant, and may include consequential losses such as lost
profits. Any supply-chain disruption, however small, could potentially cause the complete shutdown of an assembly line of one
of our customers, and any such shutdown that is due to causes that are within our control could expose us to material claims of
compensation. Where a customer halts production because of another supplier failing to deliver on time, it is unlikely we will
be fully compensated, if at all.
Adverse developments affecting one or more of our suppliers could harm our profitability.
Any significant disruption in our supplier relationships, particularly relationships with sole-source suppliers, could harm
our profitability. Furthermore, some of our suppliers may not be able to handle the commodity cost volatility and/or sharply
changing volumes while still performing as we expect. To the extent our suppliers experience supply disruptions, there is a risk
for delivery delays, production delays, production issues or delivery of non-conforming products by our suppliers. Even where
these risks do not materialize, we may incur costs as we try to make contingency plans for such risks.