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Delphi Harrison Thermal Systems has more to contend with than internal problems at its Lockport plant.
Delphi and its rivals in the automotive thermal products business are feeling the pinch from a slowdown in North American automobile industry, while automakers are pushing for price cuts from them.
Those conditions have left Delphi Harrison and its several competitors fighting for their share of a slumping North American market and vying for new business in the growing European and Asian markets.
Meanwhile, Delphi Harrison's Lockport plant, which makes radiators and air-conditioning components, is trying to shape up to meet the financial targets set by its parent company, Delphi Automotive Systems.
The drive to cut costs at the Lockport plant goes beyond satisfying its corporate parent. It also will determine the plant's ability to profitably compete for new business, said Lindsey Williams, a Delphi Harrison spokesman.
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Delphi Automotive is the world's largest auto parts supplier, but ranks second in thermal products worldwide behind Japan's Denso International. Visteon Corp., based in Michigan, is a close third in that category.
The competition has prompted some major suppliers to acquire competitors or form joint ventures to expand their reach while keeping costs in check.
Delphi Harrison has formed joint ventures with Japan-based Calsonic Kansei Corp., which is a Delphi rival in many products. The two companies are jointly making compressors -- a product they don't compete on -- at plants in Japan, France and at a new site in Hungary.
Delphi Automotive has long shown interest in buying Nissan Co.'s 35 percent stake in Calsonic. The two companies haven't struck a deal, but Nissan's top executive has described Delphi as a leading candidate to buy its stake.
That deal would help bolster Delphi's presence in Japan. Calsonic is a key supplier to Nissan, making radiators, heat exchangers, air conditioners and exhaust systems.
Competitors closing in
While Delphi Harrison has competitors around the world, many of them have operations in North America, vying for some of the same customers.
Denso International in 1999 opened an automobile air-conditioner plant in Guelph, Ont., about 100 miles from the Buffalo Niagara region.
Denso recently added to its worldwide presence by purchasing six thermal-systems plants from Italy-based Magneti Marelli; the two companies had operated the plants as a joint venture for several years.
Thermal products are vital to Denso's operations. In its past fiscal year, they accounted for 34 percent of Denso's global sales, or $6 billion. That was easily Denso's leading product segment, though the percentage fell slightly from a year earlier.
It's difficult to make a direct comparison with Delphi Automotive, since Delphi doesn't publish specific results for its thermal products area. But its Safety, Thermal and Electrical Architecture sector, which includes thermal products, rang up $10 billion in sales last year -- also accounting for about 34 percent of its total sales.
"It is an extremely competitive market," said Rick Smith, director of climate control engineering for Denso International America in Michigan. "The climate control technology market is fairly mature. It is very difficult to win out with technology these days."
Denso continues to advance its thermal products technology, but cost, delivery and quality tend to be the areas where the rivals try to distinguish themselves from each other, Smith said.
Visteon, which is nipping at Delphi's heels in thermal products, has a corporate history similar to Delphi's. Visteon was spun off from Ford Motor Co., while Delphi was spun off from General Motors. Each still generates the large majority of its sales from the automaker it separated from. Both are also driving to diversify their customer bases.
The two parts giants have shown heightened interest in the radiator replacement market or "aftermarket." A report last year by the research firm Frost & Sullivan projected that revenues generated by the North American radiator aftermarket will rise 35 percent between 1999 and 2006.
The aftermarket tends to run in a different cycle from new-vehicle sales, creating opportunities for growth even when the new-vehicle market is in a slump, said Tom Joseph, manager of advanced technology and new business pursuit in Visteon's climate control area.
Visteon tries to separate itself from its rivals based on value, not price, Joseph said. Even products such as radiators are more sophisticated than they were a decade ago, he said.
"We believe we can meet the needs of the market with a high level of systems integration," Joseph said.
Automakers are increasingly relying on their suppliers to play a larger role in areas such as product engineering. In turn, the suppliers are making choices about which components to make themselves, and which they can buy more cheaply from another source, Joseph said.
Delphi doesn't have to look very far to see Germany-based Behr BmbH & Co. taking a keen interest in the North American market: Behr is building its new North American headquarters in Troy, Mich., where Delphi is based.
Behr is aiming to double its market share within the next four years. It's also formed joint ventures with two other Delphi rivals to broaden its product line and research and development capacity.
Another Delphi Harrison competitor, Modine Manufacturing in Wisconsin, reported a 27 percent drop in earnings in its past fiscal year, hurt by a drop-off in the industry in the second half of 2000. It also cut its capital spending by 26 percent that year. But Modine executives believe the market will begin to turn around starting next month.
Seeking new customers
The auto sales slowdown is squeezing all types of auto suppliers, not just makers of thermal products, said David Cole, director of the Center of Automotive Research at the Environmental Research Institute in Ann Arbor, Mich.
U.S. auto sales roared to a record 17.4 million in 2000. But sales so far this year are 5 percent below last year's pace, pointing to a drop of about 1 million units, according to the National Automobile Dealers Association.
The Big Three auto companies sold slightly less than 60 percent of all new cars and trucks that were sold in the United States in August. Historically, they've captured about 70 percent of the U.S. market.
Not all automakers are struggling, though. Japanese automakers such as Toyota and Honda have actually posted increases.
Michael Wall, an auto analyst with IRN, a consulting firm in Michigan, said new Toyota, Honda and Nissan assembly plants in North America are creating more opportunities for U.S.-based suppliers who have traditionally relied on the Big Three.
"(Japanese automakers) have become a lot more open to looking to other suppliers, especially North American suppliers as they set up operations there," Wall said.
Tapping new markets is especially important for the automotive suppliers since they're caught in the middle on prices: The automakers push for price cuts, but it's difficult for the suppliers to press for similar price cuts from their own suppliers, who are often smaller and have fewer resources to draw upon, Wall said.
The tougher market conditions for suppliers will likely lead to more consolidation, or force some companies to drop out, Cole said.
But he sees Delphi as well-equipped to weather the economic storm: It has a global presence and offers complete systems, instead of just parts, to manufacturers, allowing it to apply technologies such as electronics across its product lines.
Staying at the top
The real question facing suppliers, Cole said, is whether they can compete on cost and technology with their rivals, and do so profitably.
Delphi Automotive is making exactly those kinds of choices as it reviews about $3 billion of business in its portfolio, deciding whether to keep, sell or close the operations. The company hasn't identified which units it's studying, but plans to make more announcements by the end of the year.
Delphi Automotive has shown an affinity for the faster-growing electronics sector; it's unclear if that heightened interest will come at the expense of traditional product lines such as radiators and air-conditioner components made at the Lockport plant.
Delphi Automotive executives have stressed that the company ought to be the No. 1 or No. 2 supplier in whatever market it's involved in, and its thermal products sector currently meets that standard.
Meanwhile, plants such as Delphi Harrison's in Lockport know they're up against stiff competition and need to make themselves more efficient to stay in the game.
"I think our customers are definitely looking at all those who can meet their needs," said Williams, the plant spokesman.
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