DELPHI 2014 Annual Report Download - page 39

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significant supplier could reduce our sales and thereby adversely affect our financial condition, operating results and cash
flows.
We operate in the highly competitive automotive supply industry.
The global automotive component supply industry is highly competitive. Competition is based primarily on price,
technology, quality, delivery and overall customer service. There can be no assurance that our products will be able to compete
successfully with the products of our competitors. Furthermore, the rapidly evolving nature of the markets in which we
compete may attract new entrants, particularly in low-cost countries such as China. Additionally, consolidation in the
automotive industry may lead to decreased product purchases from us. As a result, our sales levels and margins could be
adversely affected by pricing pressures from OEMs and pricing actions of competitors. These factors led to selective resourcing
of business to competitors in the past and may also do so in the future. In addition, any of our competitors may foresee the
course of market development more accurately than us, develop products that are superior to our products, have the ability to
produce similar products at a lower cost than us, or adapt more quickly than us to new technologies or evolving customer
requirements. As a result, our products may not be able to compete successfully with their products. These trends may
adversely affect our sales as well as the profit margins on our products.
Increases in costs of the materials and other supplies that we use in our products may have a negative impact on our
business.
Significant changes in the markets where we purchase materials, components and supplies for the production of our
products may adversely affect our profitability, particularly in the event of significant increases in demand where there is not a
corresponding increase in supply, inflation or other pricing increases. In recent periods there have been significant fluctuations
in the global prices of copper, aluminum and petroleum-based resin products, and fuel charges, which have had and may
continue to have an unfavorable impact on our business, results of operations or financial condition. Continuing volatility may
have adverse effects on our business, results of operations or financial condition. We will continue efforts to pass some supply
and material cost increases onto our customers, although competitive and market pressures have limited our ability to do that,
particularly with domestic OEMs, and may prevent us from doing so in the future, because our customers are generally not
obligated to accept price increases that we may desire to pass along to them. Even where we are able to pass price increases
through to the customer, in some cases there is a lapse of time before we are able to do so. The inability to pass on price
increases to our customers when raw material prices increase rapidly or to significantly higher than historic levels could
adversely affect our operating margins and cash flow, possibly resulting in lower operating income and profitability. We expect
to be continually challenged as demand for our principal raw materials and other supplies, including electronic components, is
significantly impacted by demand in emerging markets, particularly in China, and by the anticipated global economic recovery.
We cannot provide assurance that fluctuations in commodity prices will not otherwise have a material adverse effect on our
financial condition or results of operations, or cause significant fluctuations in quarterly and annual results of operations.
Our hedging activities to address commodity price fluctuations may not be successful in offsetting future increases in
those costs or may reduce or eliminate the benefits of any decreases in those costs.
In order to mitigate short-term volatility in operating results due to the aforementioned commodity price fluctuations, we
hedge a portion of near-term exposure to certain raw materials used in production. The results of our hedging practice could be
positive, neutral or negative in any period depending on price changes in the hedged exposures. Our hedging activities are not
designed to mitigate long-term commodity price fluctuations and, therefore, will not protect from long-term commodity price
increases. Our future hedging positions may not correlate to actual raw material costs, which could cause acceleration in the
recognition of unrealized gains and losses on hedging positions in operating results.
We may encounter manufacturing challenges.
The volume and timing of sales to our customers may vary due to: variation in demand for our customers’ products; our
customers’ attempts to manage their inventory; design changes; changes in our customers’ manufacturing strategy; and
acquisitions of or consolidations among customers. Due in part to these factors, many of our customers do not commit to long-
term production schedules. Our inability to forecast the level of customer orders with certainty makes it difficult to schedule
production and maximize utilization of manufacturing capacity.
We rely on third-party suppliers for the components used in our products, and we rely on third-party manufacturers to
manufacture certain of our assemblies and finished products. Our results of operations, financial condition and cash flows could
be adversely affected if our third party suppliers lack sufficient quality control or if there are significant changes in their
financial or business condition. If our third-party manufacturers fail to deliver products, parts and components of sufficient
quality on time and at reasonable prices, we could have difficulties fulfilling our orders, sales and profits could decline, and our
commercial reputation could be damaged.
From time to time, we have underutilized our manufacturing lines. This excess capacity means we incur increased fixed
costs in our products relative to the net revenue we generate, which could have an adverse effect on our results of operations,