Case Interview Question #00211: The client Delphi Corporation is an automotive parts manufacturing company headquartered in Troy, Michigan, USA. Delphi is an original equipment manufacturer (OEM) and supplier of auto-dashboards to auto makers in the U.S. and Europe. “Auto-dashboard” refers to the display panel, and all the gadgets within, that is directly behind the steering wheel, and is a modular product.
Recently, one of the client’s leading competitors in Europe Continental AG (FWB: CON) has approached the client with a possible contract / agreement to jointly supply dashboards in Europe. The CEO of Delphi has hired you to help him analyze the pros and cons of a partnership with the competitor Continental AG. Specifically, he wants you to address two questions: 1. What’s the motive behind the competitor’s request? 2. Should Delphi partner with the competitor?
- Client designs and manufactures instrument (dashboard) clusters.
- Client presence in North America, Europe and Asia. Competitor is present only in Europe and any partnership would be restricted to European region only.
- Customers are primarily auto manufacturers – Contracts are long-term in nature. For example BMW typically would work with the supplier for cars to be rolled out 3 years in the future.
- Product mix: 3 types of dashboards – high end, middle and low end dashboards. Maps to high-end, middle and low end autos – but car manufacturers may offer upgraded instrument panel on any car.
- The customer base in Europe can be categorized as 20% low end, 50% middle and 30% high end. Margins across these segments are low: ~0%, middle: 1-2% and high: 12-15%.
- The high end segment has the fastest growth.
- Competitor Continental AG has 50% of the high end market in Europe and no presence in low and middle end market. Client is primarily a player in the low end and middle market segments with 5% presence in the high end market.
- No big difference in quality, features and functionality between competitor and client’s car dashboard products.
- Industry trend to have same modular dashboard across different segments to have economies of scale. Low end BMW and High end BMW will have the same basic box, with the only difference being in some bells and whistles.