DETROIT - If J.T. Battenberg keeps his word, Delphi Automotive Systems will achieve its target profit margin of 5 percent of sales in 2002.
Delphi's chairman vows to boost the company's margins by 0.5 percentage points annually. In the last three months of 1998, Delphi's net income was 3.1 percent of sales.
His 'stretch' financial goals are 'difficult, but attainable,' Battenberg said in an interview with Automotive News.
A 5 percent profit margin would put Delphi on a par with other major suppliers. For example, UT Automotive's profit margin last year was 5.6 percent.
Battenberg made his comments last week after General Motors announced plans to complete the spinoff of its in-house parts supplier.
Next month GM will distribute an 80.1 percent share of Delphi stock to shareholders. GM will give shareholders 0.7 Delphi shares for each GM share they hold.
In February, GM began the spinoff by selling 17.7 percent of its shares in a stock offering that netted $1.5 billion.
GM intends to earmark its remaining 2.2 percent stake in Del-phi to bankroll health-care costs for future retirees.
STILL CHANGING
After the spinoff, Delphi will become the world's largest independent auto parts supplier. However, the company's transformation is only partly complete.
Battenberg wants to wean his company from its heavy reliance on GM sales and instill an entrepreneurial attitude into a slow-moving bureaucracy.
As always, investors will use financial yardsticks to measure his success. And Battenberg is prepared to play that game.
The chairman says he plans to:
Boost per-share earnings 10 percent annually. In 1998, Delphi lost $93 million, due in part to two UAW strikes against GM last summer. For the first three months of 1999, Delphi was expected to be profitable.
Increase sales to non-GM customers 10 percent annually. For the past three or four years, Delphi has hit this target. Currently, non-GM customers account for 20 percent of sales.
Consider acquisitions if a takeover target has cutting-edge technology. Delphi has completed a steady stream of acquisitions in overseas markets. Although Asia and South America have been buffeted by economic downturns, Delphi continues to look overseas for growth, Battenberg said.
NEW INVESTMENTS
Delphi has unloaded its operations that make coil springs, lighting and seats, and has largely
completed its North American consolidation. Now the company is spending heavily to upgrade U.S. operations, Battenberg said.
For example, Delphi will spend $65 million to produce integrated circuit boards in Kokomo, Ind. And Delphi will invest $80 million in a bearings plant in Sandusky, Ohio.
However, Delphi's financial standing could be complicated by the UAW. Union President Steve Yokich has sharply criticized the Delphi spinoff. Moreover, the UAW is likely to demand assurances that Delphi will continue to maintain wage and benefit parity with GM.
The union successfully defended that principle in previous GM spinoffs.
Battenberg declined to indicate whether Delphi would seek a separate labor contract.
