Delphi’s supply pain: moral and business responsibility in the age of isolationism
Delphi’s non-responsiveness to isolationism is concerning from a business and moral perspective.
After the introduction of NAFTA, Delphi, a UK-based global automotive components supplier, established operations in my hometown of Ciudad Juárez in 1995. The move allowed Delphi to transition from locations where it paid employees $30/hr to a location where employees earned $1/hr, thus increasing the company’s price competitiveness and allowing Delphi to maintain a favorable geographic presence. Globalization, along with “Just-in-time” inventory management, and increased integration within the auto-component supply chain, enable Delphi to serve the largest 25 OEMs, operate 126 manufacturing facilities in 46 countries, and generate revenues of $16.6Bn in 2016. Isolationist movements are putting the company’s promise is at risk.
Isolationist movements and their potential effects on the auto industry
The rise of isolationist movements across the globe, including Brexit and the renegotiation or termination of NAFTA, are raising fears that global auto industry supply chains, which have been optimized to accommodate an interconnected and globalized economy, will become less efficient and more costly due to added tariffs and increased consumer prices.
For example, the Financial Times recently reported that lorry fuel injectors produced by Delphi are produced with European steel, which is machined in the UK before receiving heat treatment in Germany. The final assembly of the injector takes place in Delphi’s UK plant in Stonehouse before being sold to truckmakers located in Sweden, France, and Germany, who in turn would sell the finished trucks in the UK. Thus, raw materials and finished goods crossed geographic borders several times during the procurement, production, and sales process on a tariff free basis. As a result, Brexit could result in tariffs on £12bn of annual raw materials utilized by the auto industry in the UK alone.
With the election of Donald Trump, NAFTA has come under fire and is currently undergoing a renegotiation. Through this process, the Trump Administration is seeking to increase the amount of regional content (e.g., North American labor, raw materials, etc.) of vehicles produced in North America from 62.5% to 85%. In addition, the Trump Administration wants to require that 50% of that regional content be produced in the USA.[4,5] These changes are likely to introduce additional costs to auto-linked manufacturers and do away with estimated annual efficiencies of $10Bn created by the NAFTA agreement across the North American auto industry.
Delphi’s response and potential alternatives
When questioned about his thoughts on the developing regulatory environment, Kevin Clark, Delphi’s President and CEO, mentioned during the company’s most recent earnings call (11/2/17) that “[Delphi operates] in a global industry. The supply chain is very global. The soft supply chain has been optimized, quite frankly, over the last 25 years. To the extent that gets affected in a negative way, I think it ultimately has implications for the cost of vehicles, which ultimately have implications for production and sale of vehicles. So that would not be positive.”
Members of the auto industry have launched the “Driving American Jobs” coalition to urge Trump not to withdraw from NAFTA, as withdrawal “would lead to a decrease in vehicle production, a decline in jobs and an increase in what our customers spend when buying a new vehicle. Not to mention this would also have an impact on our abilities to export vehicles to foreign markets.”
Delphi has not spoken out directly against isolationist movements and has continued to focus its attention on positioning itself to provide high-growth/margin products (technology focused on increased safety, reducing emissions, and improving connectivity/infotainment systems) and has entered emerging markets such as China, where it has established 6 new manufacturing facilities since 2012.
The uncertain regulatory environment creates an opportunity for Delphi to further explore the shortening its supply chains, while limiting disrupting at existing production facilities. For example, Delphi should consider working with other component suppliers to coordinate their supply chains to provide quality products and services to overlapping customers. Furthermore, Delphi should explore vertically integrating additional auto components that clients source from other providers or regions. Although these types of process and product integrations might be difficult to achieve in the short-term, the company could benefit in the long-term as it increases its capability of fulfilling client’s needs.
Delphi’s community impact and moral responsibility
As manufacturers such as Delphi created 250,000+ jobs in Juárez, my home has become the second largest exporting entity of the country, contributing ~10% of Mexico’s exports, of which 55% are related to the manufacturing of machinery, electronics, and auto sub-assembly parts.[8,9]
In the face of these challenges, should Delphi do more to ensure that the communities through which it has built its brand and reputation continue to thrive? Should the company be more vocal against isolationist movements? Will my city survive a Trump-influenced NAFTA?
 Kate Linthicum, “What happened when factory jobs moved from Warren, Ohio, to Juarez, Mexico,” Los Angeles Times, November 14, 2017, http://www.latimes.com/world/mexico-americas/la-fg-mexico-us-factories-20170217-htmlstory.html, accessed November 2017
 Delphi Automotive Plc, 2016 Annual Report (Gillingham, Kent, 2017), p. 4-5 https://www.sec.gov/Archives/edgar/data/1521332/000152133217000013/dlph1231201610k.htm#s7451F8BD837B3E3223B89C37D4CC6239
 Peter Campbell, “UK car industry fears effects of Brexit tariffs on supply chain,” Financial Times, October 16, 2016, https://www.ft.com/content/c397f174-9205-11e6-a72e-b428cb934b78, accessed November 2017
 Video conference with Kenneth Smith (Lead NAFTA Negotiator for Mexico), Boston, Massachusetts, November 13, 2017
 “NAFTA Negotiation Update: Auto & Parts Sector Implications,” October 13, 2017, Center for Automotive Research, http://www.cargroup.org/nafta-negotiation-update-auto-parts-sector-implications/, accessed November 2017
 Ryan Beene, “Auto Industry Sees Threat to Jobs and Profits From Trump’s Nafta Push,” October 12, 2017, https://www.bloomberg.com/news/articles/2017-10-12/auto-industry-sees-threat-to-jobs-profits-from-trump-nafta-push, accessed November 2017
 ”American Auto Industry Unites to Defend NAFTA and Preserve American Jobs,” October 24, 2017, Driving American Jobs, https://globenewswire.com/news-release/2017/10/24/1152521/0/en/American-Auto-Industry-Unites-to-Defend-NAFTA-and-Preserve-American-Jobs.html, accessed November 2017
 ”Programa de la industria manufacturera, maquiladora y de servicios de exportación (IMMEX) – 2007 en adelante,” 2016, Instituto Nacional de Estadística y Geografía, http://www.inegi.org.mx/est/contenidos/proyectos/registros/economicas/manufacturera/default.aspx, accessed November 2017
 ”Exportaciones por Entidad Federativa,” 2016, Instituto Nacional de Estadística y Geografía, http://www.inegi.org.mx/est/contenidos/proyectos/registros/economicas/exporta_ef/default.aspx, accessed November 2017