DETROIT (July 17, 11:15 a.m. ET) — Two and a half years after emerging from Chapter 11 bankruptcy protection, Delphi Automotive LLP is growing again. In May, the company announced plans to buy FCI Group's electrical connectors business for $972 million, and CEO Rodney O'Neal says he is not finished.
O'Neal, 58, says he would consider buying suppliers of powertrain components, electronics or software under the right circumstances. O'Neal discussed his company's expansion strategy with Special Correspondent David Sedgwick of Automotive News.
Q: In May, Delphi said it plans to buy FCI's automotive connector operation for $972 million. That would make Delphi the world's No. 2 producer of electrical connectors, right?
O'Neal: Yes. We'll be behind Tyco [TE Connectivity]. But we don't need acquisitions to create value. These types of acquisitions won't transform Delphi. They are bolt-ons.
Q: So your acquisitions will supplement the products you have?
O'Neal: That's exactly right. This acquisition fits us like a glove. We already have a very capable electrical connector company. This just speeds things up.
Q: You aren't changing course.
O'Neal: We're just accelerating.
Q: You've said you're willing to spend up to $1 billion for other acquisitions.
O'Neal: I think that's the upper limit.
Q: In what other product segments are you considering acquisitions?
O'Neal: Electronics and software.
Q: Do you mean infotainment electronics?
O'Neal: I wouldn't limit it to that, but that would be an area of interest, particularly for software. Powertrain components are another area of high interest. If something comes along that makes sense, we'd move on it.
Q: How fast are you growing in China?
O'Neal: Last year, our sales in China were $1.8 billion. By 2015, China will generate $3.5 billion to $4 billion out of $22 billion [forecasted global sales]. We have 23,000 employees and 2,800 engineers in China.
Q: Which product division is biggest in China?
O'Neal: Our electrical architecture team has led the way. Of our 33 product lines, about 20 are [marketed] there. We're still completing the vision.
Q: How are you doing in Europe?
O'Neal: If things maintain the way they are, we'll be fine. We'll outgrow the market by 4-5 percentage points.
Q: This year, Delphi projected global sales of $16.2 billion to $16.5 billion. In light of China's recent slowdown and Europe's stagnation, are you sticking with that forecast?
O'Neal: It's been a choppy market. But when you look at what's been happening for the past year, it's been pretty steady for us. Our production schedules look sound.
Q: How much revenue will North America generate in 2015?
O'Neal: Our goal is to be perfectly balanced geographically. That is, 30 percent of our sales will be in Asia, 30 percent in North America, 30 percent in Europe and 10 percent in South America. We are well on our way to that.
Q: What share of Delphi sales will GM and Opel represent?
O'Neal: No customer will be more than 15 percent of our portfolio. Today, GM is 18 to 19 percent of our business. So we've come a long way from 50 percent [in 2005].
Q: Who are your second- and third-biggest customers?
O'Neal: Volkswagen and Ford.
Q: At what percentage of capacity are your North American factories operating?
O'Neal: We are operating at 80 to 85 percent [of capacity]. We are not adding brick-and-mortar or tooling, but we are working to be more efficient. In the foreseeable future, we'll add some capacity, but nothing major.
Q: You're confident you can meet your production targets in North America?
O'Neal: We are extremely confident.
Q: How difficult is it to find qualified engineers?
O'Neal: We have around 17,000 engineers around the world. Human capital is always challenging. But I wouldn't say it's any harder than it has been. We aren't having trouble keeping talent.
Q: How much money are you allotting for R&D?
O'Neal: It's about 7 to 8 percent of revenue. There are some competitors that spend more; most spend less. We are comfortable with what we spend.