DELPHI 2015 Annual Report Download - page 59

Table of Contents
37
Consolidated Results of Operations
In 2015, total global OEM production volumes increased 2% from 2014. Although total global OEM production volumes
increased, indicating continued stabilization of the global economy, the economic recovery has remained uneven from a
regional perspective. 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.
Although automotive production in China increased by 4% in 2015 as compared to 2014, this represents a reduction from the
overall level of long-term automotive market growth in the country. Additionally, vehicle production in South America
decreased by 19% in 2015 as compared to 2014, which follows a 17% decrease in that region in 2014.
In light of the economic uncertainties and reductions to vehicle production in certain regions, we have initiated
restructuring actions as appropriate in order to align our manufacturing capacity and footprint with the current automotive
production levels, and to continue the rotation of our manufacturing footprint to low cost locations. As we continue to operate
in a cyclical industry that is impacted by movements in the global and regional economies, we continually evaluate
opportunities to further adjust our cost structure. However, we believe our strong balance sheet coupled with our flexible cost
structure will position us to capitalize on any strengthening of the global economy and improvements in OEM production
volumes.
Our total net sales during the year ended December 31, 2015 were $15.2 billion, a decrease of 2% compared to 2014.
This compares to total global OEM production increases of 2% in 2015. The decrease in our total net sales is primarily
attributable to unfavorable foreign currency impacts, which offset increased sales volumes in North America, Europe and Asia
Pacific. Partially offsetting these increases were reduced sales volumes in our smallest region, South America, due to
continuing economic weakness, resulting in continued reductions in OEM production schedules in the region. Our overall lean
cost structure, along with above-market sales growth in North America, Europe and Asia Pacific, enabled us to improve gross
margins in the year ended December 31, 2015 as compared to the prior year.
The increase in our total net sales of 3% during the year ended December 31, 2014 as compared to 2013 was attributable
to increased sales in North America and Asia Pacific. Although our net sales in Europe also increased modestly in 2014, our
sales continued to be impacted by persistent economic uncertainties in the region, which resulted in limited growth in OEM
production in 2014. Partially offsetting these increases were reduced sales in South America, due to continuing economic
weakness, which resulted in reductions in OEM production schedules in the region.
Delphi typically experiences fluctuations in revenue due to changes in OEM production schedules, vehicle sales mix and
the net of new and lost business (which we refer to collectively as volume), increased prices attributable to escalation clauses in
our supply contracts for recovery of increased commodity costs (which we refer to as commodity pass-through), fluctuations in
foreign currency exchange rates (which we refer to as FX), contractual reductions of the sales price to the OEM (which we
refer to as contractual price reductions) and engineering changes. Changes in sales mix can have either favorable or
unfavorable impacts on revenue. Such changes can be the result of shifts in regional growth, shifts in OEM sales demand, as
well as shifts in consumer demand related to vehicle segment purchases and content penetration. For instance, a shift in sales
demand favoring a particular OEM’s vehicle model for which we do not have a supply contract may negatively impact our
revenue. A shift in regional sales demand toward certain markets could favorably impact the sales of those of our customers
that have a large market share in those regions, which in turn would be expected to have a favorable impact on our revenue.
We typically experience (as described below) fluctuations in operating income due to:
• Volume, net of contractual price reductions—changes in volume offset by contractual price reductions (which
typically range from 1% to 3% of net sales) and changes in mix;
• Operational performance—changes to costs for materials and commodities or manufacturing variances; and
• Other—including restructuring costs and any remaining variances not included in Volume, net of contractual price
reductions or Operational performance.
The automotive component supply industry is traditionally subject to inflationary pressures with respect to raw materials
and labor which may place operational and profitability burdens on the entire supply chain. We will continue to work with our
customers and suppliers to mitigate the impact of these inflationary pressures in the future. In addition, we expect commodity
cost volatility, particularly related to copper and petroleum-based resin products, to have a continual impact on future earnings
and/or operating cash flows. As such, we continually seek to mitigate both inflationary pressures and our material-related cost
exposures using a number of approaches, including combining purchase requirements with customers and/or other suppliers,
using alternate suppliers or product designs, negotiating cost reductions and/or commodity cost contract escalation clauses into
our vehicle manufacturer supply contracts, and hedging.