DELPHI 2011 Annual Report Download - page 42

Table of Contents
Global capabilities. Many OEMs are adopting global vehicle platforms to increase standardization, reduce per unit cost and increase capital efficiency
and profitability. As a result, OEMs are selecting suppliers that have the capability to manufacture products on a worldwide basis, as well as, the flexibility to
adapt to regional variations. Suppliers with global scale and strong design, engineering and manufacturing capabilities, are best positioned to benefit from this
trend. Our global footprint enables us to serve the global OEMs on a worldwide basis as we gain market share with the emerging market OEMs. This regional
model has largely migrated to service the North American market out of Mexico, the South American market out of Brazil, the European market out of
Eastern Europe and North Africa and the Asia Pacific market out of China.
Product development. The automotive component supply industry is highly competitive, both domestically and internationally. Our ability to anticipate
changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis will be a significant
factor in our ability to remain competitive. To compete effectively in the automotive supply industry, we must be able to launch new products to meet our
customers' demands in a timely manner. Our innovative technologies and robust global engineering and development capabilities have well positioned us to
meet the increasingly stringent vehicle manufacturer demands.
OEMs are increasingly looking to their suppliers to simplify vehicle design and assembly processes to reduce costs. As a result, suppliers that sell
vehicle components directly to manufacturers (Tier I suppliers) have assumed many of the design, engineering, research and development and assembly
functions traditionally performed by vehicle manufacturers. Suppliers that can provide fully-engineered solutions, systems and pre-assembled combinations of
component parts are positioned to leverage the trend toward system sourcing.
Engineering, design & development. Our history and culture of innovation have enabled us to develop significant intellectual property and design and
development expertise to provide advanced technology solutions that meet the demands of our customers. We have a team of more than 17,000 scientists,
engineers and technicians focused on developing leading product solutions for our key markets, located at 15 major technical centers in Brazil, China, France,
Germany, India, Luxembourg, Mexico, Poland, South Korea, the United Kingdom and the United States. We invest approximately $1 billion annually in
research and development, including engineering, to maintain our portfolio of innovative products, and currently own approximately 5,500 patents. We also
encourage "open innovation" and collaborate extensively with peers in the industry, government agencies and academic institutions. Our technology
competencies are recognized by both customers and government agencies, who have co-invested approximately $400 million of additional funds annually in
new product development, increasing our total spend accordingly, accelerating the pace of innovation and reducing the risk associated with successful
commercialization of technological breakthroughs.
In the past, suppliers often incurred the initial cost of engineering, designing and developing automotive component parts, and recovered their
investments over time by including a cost recovery component in the price of each part based on expected volumes. Recently, we and many other suppliers
have negotiated for cost recovery payments independent of volumes. This trend reduces our economic risk.
Pricing. Cost-cutting initiatives adopted by our customers result in increased downward pressure on pricing. Our customer supply agreements generally
require step-downs in component pricing over the periods of production and OEMs have historically possessed significant leverage over their outside
suppliers because the automotive component supply industry is fragmented and serves a limited number of automotive OEMs. Our profitability depends in
part on our ability to generate sufficient production cost savings in the future to offset price reductions.
In 2010, we largely completed our restructuring activities, resulting in a lower fixed cost base, improved manufacturing footprint and reduced overhead.
We dramatically reduced our U.S. and Western European footprints, realigned our selling, general and administrative cost structure and increased the variable
nature of our employee base. As a result, approximately 90% of our hourly workforce is located in low cost countries. Furthermore, we have substantial
operational flexibility by leveraging a large workforce of temporary workers,
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