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Delphi deal expires at year end

The training wheels are long gone, and it's official.

One of Delphi Automotive Systems Corp.'s key ties to former parent General Motors expires at the end of December: the supplier's right to retain existing business by matching competitors on price and other criteria.

The companies negotiated the three-year cushion, commonly called the right of last refusal, upon Delphi's separation from GM in 1999.

Though GM, Delphi and an industry analyst say they don't expect much to change, other suppliers are anticipating greater opportunity with the world's largest automaker come Jan. 1.

Delphi still counts on GM for about 68 percent of its global revenues, estimated at about $26 billion for 2001, and that business won't be resourced in a sweeping wave.

"We see this as an opportunity to clearly increase our business with General Motors, and we will be pursuing chances with GM accordingly," said Jeff Klei, vice president of sales and marketing for Continental Teves Inc., a competing brake supplier. But, "this will happen slowly and over time - you won't see major swings," he said.

Others also expect a gradual change, though Delphi and GM representatives say the transition already has occurred.

"Out of hundreds of business awards over the last few years, that (right of last refusal) has been used a handful of times," said David Wohleen, a Delphi executive vice president and the executive responsible for the GM business.

Courting new customers

Delphi has let go of some business that wasn't core orwasn't competitive, but for the most part, the supplier already has spent the past few years firmly in a competitive stance, said Wohleen, also president of Delphi's electronic and mobile communication sector. The company boasts double-digit revenue growth with non-GM customers.

"Winning that business is kind of an indication of our market readiness," Wohleen said. Still, GM remains a very important customer, and "we're going to continue to be aggressive," he said.

Even with the agreement - used "fairly regularly," say GM purchasing representatives - the automaker's sourcing decisions always have been made based on quality, service, technology and price, said Mike Lapinski, GM executive director of global sourcing. That won't change; the agreement's expiration is another step to normalizing the relationship.

Though no major sourcing shifts are expected, "I think it just levels the playing field for all the large global suppliers," said Jim Bovenzi, GM executive director for global electrical purchasing.

Visteon has similar deal

Delphi's biggest competitor, itself recently separated from Ford Motor Co. and bound by a similar supply agreement expiring in May 2003, is counting on that. Visteon Corp. already has won some significant business with GM, especially in the climate control and power control module business and is aiming for more.

"There have been instances where (Delphi) has used (the right of last refusal) to take business we were bidding on," said Susan Skerker, Visteon senior vice president of business strategy and corporate relations. "So we assume it will have some impact, just as when we lose ours, it will have some impact. Fair is fair."

You can reach Amy Wilson at awilson@crain.com

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