Delphi Revises 2004 Earnings Guidance

Reaffirms calendar year operating cash flow guidance Revised earnings cite low production volumes and increasing commodity pressures Company taking enterprise-wide actions in challenging environment

TROY, Mich., Oct. 5 -- Delphi Corp. has revised its earnings outlook for Q3 and calendar year 2004 and will announce details during a conference call today at 5 p.m. ET. (Details are included at the end of the release.) The revised Q3 pro forma guidance(1), excluding restructuring charges, is a net loss of $65 million to $72 million on revenue of approximately $6.65 billion. Previous pro forma net income(1) guidance for the third quarter was a loss of $20 million to positive earnings of $10 million.

"During the second half of the year, we have experienced a more challenging U.S. volume environment, increased commodity price pressures as well as program launch and volume-related cost issues, which more than explain the approximate $60 million pro forma earnings(1) gap versus our July guidance," said Alan S. Dawes, Delphi vice chairman and chief financial officer. "We are taking cost-reduction and cash conservation actions in the face of these challenges. Although Q3 earnings are below original Q3 guidance, Q3 operating cash flow(2) is expected to exceed $300 million, due in part to efficient management of capital spending and working capital." Previous third quarter operating cash flow(2) guidance was $150 million to $250 million.

GAAP net income guidance for Q3 2004 is a loss of $113 million to $120 million. Previous GAAP net income forecast for the quarter was a loss of $10 million to $40 million. Delphi expects Q3 restructuring charges during the quarter to total approximately $25 million after-tax. Additionally, the restructuring impact in the third quarter will be greater than originally anticipated due to the impact of lowering our tax rate on the first half restructuring charges, which has a negative impact of approximately $23 million in the third quarter.

Factors Driving Revised Pro Forma Guidance

"During the first half of 2004, Delphi benefited from greater than expected U.S. hourly attrition, strong non-GM and Asia Pacific growth, which at more than 20 percent was above planning levels, as well as the positive impact of a lower tax rate. These factors more than offset lower-than- expected U.S. volumes and commodity price pressures during the first half," Dawes said. "In the second half, Asia Pacific and non-GM revenue growth, while solid at 16 percent to 17 percent, is insufficient to offset growing commodity price pressures and declines in production volumes, which in the second half are outpacing our U.S. hourly headcount attrition."

"Combined with the aforementioned cost challenges, these factors have impacted our near term operating performance. These pressures are being partially offset by cost-focused action plans and other initiatives as well as the benefit of the decline in our tax rate which has occurred as U.S. losses increase," Dawes added.

Q4 and 2004 CY Guidance

"In Q4, we expect these volume and commodity price pressures to continue, particularly the impact of resins and steel," Dawes said. "While these negative factors are outpacing the benefit of our growth activities in the second half of the year, we continue to generate strong cash flow, reflecting solid asset management."

Delphi updated its Q4 and calendar year guidance to the following:

* Q4 revenues of $7.0 billion - $7.2 billion; CY revenues of $28.6 billion - $28.8 billion;

* Q4 GAAP net earnings from a loss of $18 million to positive earnings of $32 million; CY GAAP earnings of $47 million - $104 million;

* Q4 pro forma net earnings(1) of $25 million - $75 million; CY pro forma earnings(1) of $232 million - $289 million; and

* Q4 operating cash flow(2) of $350 million - $450 million; CY operating cash flow(2) of $1.4 billion.

Actions Taken to Meet Challenges

"Delphi is operating too close to our breakeven point and we must move more aggressively to reduce costs enterprise wide," Dawes said. "We're deferring our non-critical SG&A and capital expenditures. In addition, we're limiting our hiring in areas that will not affect our customer commitments and continuing to utilize attrition extensively to reduce our workforce. Beyond these actions, we must work with our unions, suppliers and customers to identify additional cost reduction opportunities in this challenging environment."

Dawes cited specific measures taken by Delphi in recent months. "Delphi completed consolidation activities of its Automotive Holdings Group Flint West operations and has reduced U.S. hourly headcount by approximately 5,500 since October 2003.

"We are continuing to aggressively pursue our consolidation plans at the three previously announced sites within Delphi's Automotive Holdings Group," added Dawes. "It is critical that we reduce our cost structure through these consolidations and match attrition to these lower U.S. production levels."

"In light of the current challenges, Delphi is moving aggressively to address this difficult environment, particularly in the U.S.," said J.T. Battenberg III, Delphi chairman, CEO and president. "We are also executing on our long term value drivers, growing our non-GM business, reducing our legacy cost structure and generating strong cash flow."

Conference Call Information

(2) Operating cash flow is internally defined as GAAP cash flow from operations as shown on our consolidated statement of cash flows less capital expenditures, plus pension contributions and cash paid for employee, product line and related charges, and changes in the sale of accounts receivable and supplier financing programs. Projected operating cash flow is based upon projected GAAP cash flow from operations of $175 million to $225 million for Q3 2004, $400 million to $500 million for Q4 2004 and $1.1 billion to $1.3 billion for calendar year 2004.