DELPHI 2012 Annual Report Download - page 54

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Market driven products. Our product offerings satisfy the OEMs’ need to meet increasingly stringent government
regulations and meet consumer preferences for products that address the mega-trends of Safe, Green and Connected, leading to
increased content per vehicle, greater profitability and higher margins. With these offerings, we believe we are well-positioned
to benefit from the growing demand for vehicle content related to safety, fuel efficiency, emissions control and connectivity to
the global information network. Our Electrical/Electronic Architecture and Electronics and Safety segments are benefiting from
the substantial increase in vehicle content and electrification requiring a complex and reliable electrical architecture and
systems to operate, such as hybrid power electronics, electrical vehicle monitoring, lane departure warning systems, integrated
electronic displays, navigation systems and consumer electronics. Our ability to design a reliable electrical architecture that
optimizes power distribution and/or consumption is key to satisfying the OEMs’ need to reduce emissions while continuing to
meet the demands of consumers. Additionally, our Powertrain Systems and Thermal Systems segments are also focused on
addressing the demand for increased fuel efficiency and emission control by improving fuel consumption and heat dissipation,
which are principal factors influencing fuel efficiency and emissions.
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 and cost competitive 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 18,000 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 $1.6 billion
(which includes approximately $400 million co-investment by customers and government agencies) annually in research and
development, including engineering, to maintain our portfolio of innovative products, and owned/held approximately 7,000
patents and protective rights as of December 31, 2012. 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 annually in new product development,
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.
We are focused on maintaining a low fixed cost structure that provides us flexibility to remain profitable despite decreases
in industry volumes and at all points of the traditional vehicle industry production cycle. We believe that our lean cost structure
will allow us to remain profitable at all points of the traditional vehicle industry production cycle. As a result, approximately
92% of our hourly workforce is located in low cost countries. Furthermore, we have substantial operational flexibility by