Delphi: '05 Outlook Bleak

As 2004 drew to a close, Delphi Corp.'s J.T. Battenberg III said the auto industry continues to wrestle with high raw-material costs, global overcapacity and back-breaking health-care and pension obligations.

His 2005 outlook is not optimistic. “Next year will be tough,” Delphi's chairman, president and CEO told the Detroit Economic Club, prior to the supplier's announcement it will cut 8,500 jobs in 2005, while working to reduce costs and capital requirements.

Delphi placed three more facilities (Laurel, MS; Kettering, OH; Home Avenue-Vandalia, OH) into its Auto-motive Holdings Group for under-performing sites.

In mid-December, Delphi forecast fourth-quarter revenues between $6.9 billion and $7.0 billion, which is about $200 million lower than prior guidance and includes a projected net loss of $123 million-$143 million. Revenues for 2005 are projected at $28.5 billion-$29.0 billion, with a net loss of $350 million.

In his Economic Club speech, Battenberg said planned Big Three production cutbacks in early 2005 will hinder Delphi's bottom line. In 2004, Battenberg said the weighted cost of raw materials used to manufacture automobiles has skyrocketed more than 50% globally. “Cost pressures will be severe in 2005,” he said.

“Potentially higher raw-material costs could force auto makers to back away from record (vehicle) incentives, therefore further dampening demand,” he said. He cited a recent business survey that predicts health-care expenses, litigation costs and energy prices will continue to exert pressure on U.S. businesses for at least another year.

The outlook for 2005 is not entirely negative, however. The picture, Battenberg said, is “peppered with a few bright spots around the world,” namely India.