Kevin Clark, CFO and senior vice president of Delphi Automotive, says the day to day focus of his job is keeping the $16 billion automotive parts supplier on the same path it’s been following since emerging from bankruptcy in 2009 and completing its initial public offering in November.
If he and the rest of the Delphi management team keep focusing on evaluating capital allocation carefully, assessing measures such as cash on cash returns, and meeting consumer demand for “safe, green and connected” vehicles, Delphi should soon regain its investment-grade rating and generate an even better return than the over 300% return it has achieved since exiting Chapter 11, and the 50% lift since its IPO, Clark told attendees at Treasury & Risk’s 17th Annual Alexander Hamilton Best Practices Summit in New York.
Delphi shares are trading about $31, up about 46% since the beginning of the year, and the company currently is rated one notch below investment grade.
“We have to keep executing on the path,” Clark says. He gives Delphi CEO Rodney O’Neal full marks for doing the hard work of turning Delphi around after the company filed for bankruptcy in 2005 and says O’Neal did so by creating a culture where each employee thinks and acts like an owner.
During the Chapter 11 process, Delphi halved the size of its business, reduced costs and diversified its customer and geographic mix, with 35% now coming from North America, 45% from Europe, and the rest from China and South America.
China is the company’s fastest-growing market now, Clark says, and Delphi recently invested $100 million in a powertrain plant there.
The company also expects to close this year on the $972 million acquisition of the motorized vehicles division of Bain’s FCI Group, which will give Delphi more heft in electrical connector products.
Clark joined Delphi in 2010 after a three-year stint as a founding partner of Liberty Lane Partners, a private-equity investment firm.
Earlier in his career, he was CFO at Fisher Scientific International. Working there was a “defining experience” for him, Clark says, since it was the first time he had left the perceived security of the automotive industry, having begun his career at Chrysler in the late 1980s.
At Fisher Scientific, he saw the management team maintain a laser-like focus on building shareholder value, even in his job interview with the CEO, who readily admitted in response to Clark’s question that he would sell the company in a “heartbeat” if it resulted in increased shareholder value.
Fisher Scientific’s management acted as if they were opening their own checkbooks, Clark says, an attitude that also prevailed at Liberty Lane Partners.
His work at the private equity firm “taught me the importance of management,” he says. “You get to witness the difference” between good and bad management.
Top executives should encourage every employee to act like an owner, something he observes and appreciates at Delphi. “To put it simply, I believe we’re at our best when we act less like employees, and more like business owners,” Clark said during his speech. “Thinking and acting like owners is critical to success in both good and bad times, regardless of the industry you operate in.”
Such an approach includes being actively engaged in the business. Clark says he makes efforts to keep up with automotive technologies so that he can make good decisions about capital allocations, such as the investment in the connector business.
In addition, executives must understand the markets served, such as China, an “important growth market,” Clark says, where he expects Delphi’s new powertrain plant to be operational in three to four years.
Lastly, it’s key not to lose sight of the fact that “management matters,” Clark says, and that a company’s management has the ability to improve performance and shareholder value.