Delphi in Trouble

            
 
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Case Details:

Case Code : BSTR189
Case Length : 20 Pages
Pages Period : 1995-2005
Organization : Delphi Corporation.
Pub Date : 2005
Teaching Note :Not Available
Countries : US
Themes: Failure of Strategy
Industry : Auto and Ancillaries

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Introduction Contd...

Delphi's petition created panic in the already ailing US auto industry which was facing intense competition from low cost foreign car manufacturers and through the outsourcing of manufacturing to low cost countries in Asia and South America. Many US auto component suppliers had filed for bankruptcy since 2000. Analysts said that Delphi's bankruptcy filing would affect the US automobile industry as a whole, and, in particular, its former parent GM, still Delphi's major customer.

They believed that GM, which reported US$ 2.5 billion losses for the first half of 2005, would have to pay nearly US$ 12 billion in pension benefits to Delphi workers as promised during the spin-off. Delphi filed its bankruptcy petition after talks with GM and United Auto Workers (UAW)4 failed.

According to Michael Metz, chief investment strategist at Oppenheimer & Company,5 "The Delphi bankruptcy didn't help. The concern is, what are the repercussions of that for General Motors and for other automakers and the component makers. And it's all happening against a background where real wages are not rising, so the question is, who's going to buy what American manufacturers produce?"6

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Background Note

Delphi's history dates back to 1899 when Albert Champion (Champion) started The Champion Ignition Company to manufacture spark plugs. In 1901, Frank Remy and Perry Remy founded Remy Electric Co. (Remy) and started building dynamos and magnetos which replaced batteries in early automobiles.

In 1905, Champion broke the partnership with the other investors and in 1908, joined Buick Motor Co. (Buick)7 and started producing spark plugs under the name AC Spark Plug Division (AC were the first two letters in Champion's name). In 1911, Remy was sold to Fletcher Savings and Trust Company. In 1916, the United Motors Corporation (UM) acquired the AC Spark Plug Division and Buick, started United Motor Services Incorporated (UMS) and merged with Chevrolet Motor Company.8 In the same year UM also acquired Dayton Engineering Laboratories Company (DELCO) and Remy. In 1918, UM and GM merged with each other and in 1926, Delco and Remy were combined to form Delco Remy Corporation...

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4] UAW (The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America) is one of the largest labor unions in North America with approximately 620,000 active members and more than 500,000 retired members in the US, Canada and Puerto Rico (www.uaw.org).

5] Founded in 1881, Oppenheimer & Company is the leading investment firm which provides financial advices to high net-worth investors. For the financial year ended December 2004, the revenues were US$ 655,140 and net profit was US$ 22,501.

6] "Worries about GM rise after Delphi bankruptcy," www.msnbc.msn.com, October 10, 2005.

7] Buick was founded by David Dunbar Buick and was incorporated on May 19, 1903. The company was bought by GM in 1908.

8] Headquartered in Detroit, Chevrolet Motor Company was founded by Louis Chevrolet, William Little and Edwin Cambell. Chevrolet was acquired by GM in 1918.

 

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