##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549-1004


FORM 10-Q



|  |                                                                                             
|- | --------------------------------------------------------------------------------------------
|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
    THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

OR



|  |                                                                                      
|- | -------------------------------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OF THE 
     SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to
.

Commission file No. 1-14787

DELPHI CORPORATION

(Exact name of registrant as specified in its
charter)


|                                         |  |                       
|---------------------------------------- |  | ----------------------
|Delaware                                 |  | 38-3430473            
|(State or other jurisdiction of          |  | (IRS employer         
|incorporation or organization)           |  | identification number)
|                                        
|5725 Delphi Drive, Troy, Michigan        |  | 48098                 
|(Address of principal executive offices) |  | (Zip code)            

(248) 813-2000

(Registrants telephone number, including
area code)


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past 90 days.     Yes
X.     No .

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).     Yes
X.     No .

As of March 31, 2004 there were 560,345,280
outstanding shares of the registrants $0.01 par value
common stock.



---










DELPHI CORPORATION

INDEX

|                                                |  |                                                                                                              |    |      |    | 
|----------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|                                                |  |                                                                                                              |    | Page |   
|                                                |  |                                                                                                              |    |      |   
|Part I 
    Financial Information             
|                                               
|Item 1.                                         |  | Financial Statements                                                                                         |    |      |    | 
|                                               
|                                                |  | Consolidated Statements of
    Income (Unaudited) for the Three Months
    Ended March 31, 2004 and 2003     |    |      | 3  | 
|                                               
|                                                |  | Consolidated Balance Sheets
    at March 31, 2004 (Unaudited)
    and December 31, 2003                      |    |      | 4  | 
|                                               
|                                                |  | Consolidated Statements of
    Cash Flows (Unaudited) for the Three Months Ended
    March 31, 2004 and 2003 |    |      | 5  | 
|                                               
|                                                |  | Notes to Consolidated
    Financial Statements (Unaudited)                                                   |    |      | 6  | 
|                                               
|Item 2.                                         |  | Managements Discussion
    and Analysis of Financial Condition and Results
    of Operations                |    |      | 14 | 
|                                               
|Item 3.                                         |  | Quantitative and Qualitative
    Disclosures About Market Risk                                               |    |      | 24 | 
|                                               
|Item 4.                                         |  | Controls and Procedures                                                                                      |    |      | 24 | 
|                                               
|Part II 
    Other Information                
|                                               
|Item 1.                                         |  | Legal Proceedings                                                                                            |    |      | 25 | 
|                                               
|Item 6.                                         |  | Exhibits and Reports on
    Form 8-K                                                                         |    |      | 25 | 
|                                               
|Signature                                       |  |                                                                                                              | 26 |     
|Ex-31.(a) Certification Pursuant to Section 302
|Ex-31.(b) Certification Pursuant to Section 302
|Ex-32.(a) Certification Pursuant to Section 906
|Ex-32.(b) Certification Pursuant to Section 906



2



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PART I. FINANCIAL
INFORMATION



ITEM 1. FINANCIAL STATEMENTS


DELPHI CORPORATION



CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


|                                     |                                             |                          |      |       |       |   |      |       |       | 
|------------------------------------ | ------------------------------------------- | ------------------------ | ---- | ----- | ----- | - | ---- | ----- | ----- | 
|                                     |                                             |                         
|                                     |                                             | Three Months Ended       |     
|                                     |                                             | March 31,                |     
|                                     |                                             |                          |     
|                                     |                                             | 2004                     |      |       | 2003  |  
|                                     |                                             |                          |      |       |       |  
|                                     |                                             |                         
|                                     |                                             | (in millions, except     |     
|                                     |                                             | per share amounts)       |     
|Net sales:                           |                                             |                          |      |       |       |   |      |      
|                                     | General Motors and affiliates               |                          | $    | 4,190 |       |   | $    | 4,555 |      
|                                     | Other customers                             |                          |      | 3,221 |       |   |      | 2,627 |      
|                                     |                                             |                          |      |       |       |  
|                                     |                                             | Total net sales          |      |       | 7,411 |   |      |       | 7,182 | 
|                                     |                                             |                          |      |       |       |  
|Less: operating expenses             |                                             |                          |      |       |       |   |      |      
|                                     | Cost of sales, excluding items listed below |                          |      | 6,570 |       |   |      | 6,312 |      
|                                     | Selling, general and administrative         |                          |      | 403   |       |   |      | 389   |      
|                                     | Depreciation and amortization               |                          |      | 279   |       |   |      | 253   |      
|                                     | Employee and product line charges           |                          |      | 38    |       |   |      |      |      
|                                     |                                             |                          |      |       |       |  
|                                     |                                             | Total operating expenses |      |       | 7,290 |   |      |       | 6,954 | 
|                                     |                                             |                          |      |       |       |  
|Operating income                     |                                             |                          | 121  |       |       |   | 228  |      
|Less: interest expense               |                                             |                          | 59   |       |       |   | 45   |      
|Other income, net                    |                                             |                          | 8    |       |       |   | 2    |      
|                                     |                                             |                          |      |       |       |  
|Income before income taxes           |                                             |                          | 70   |       |       |   | 185  |      
|Income tax expense                   |                                             |                          | 16   |       |       |   | 58   |      
|                                     |                                             |                          |      |       |       |  
|Net income                           |                                             | $                        | 54   |       |       | $ | 127  |      
|                                     |                                             |                          |      |       |       |  
|Basic and diluted earnings per share |                                             | $                        | 0.10 |       |       | $ | 0.23 |      
|                                     |                                             |                          |      |       |       |  

See notes to consolidated financial statements.

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DELPHI CORPORATION



CONSOLIDATED BALANCE SHEETS


|                                           |                                                                                                                    |                               |                            |        |              |        |        |        |       |        | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------ | ----------------------------- | -------------------------- | ------ | ------------ | ------ | ------ | ------ | ----- | ------ | 
|                                           |                                                                                                                    | March 31,                     |                            |        |             
|                                           |                                                                                                                    | 2004                          |                            |        | December 31, |       
|                                           |                                                                                                                    | (Unaudited)                   |                            |        | 2003         |       
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                           |                                                                                                                    |                              
|                                           |                                                                                                                    | (in millions)                 |                           
|ASSETS                                    
|Current assets:                            |                                                                                                                    |                               |                            |        |              |        |        |       
|                                           | Cash and cash equivalents                                                                                          |                               | $                          | 808    |              |        | $      | 880    |      
|                                           | Accounts receivable, net:                                                                                          |                               |                            |        |              |        |        |        |      
|                                           |                                                                                                                    | General Motors and affiliates |                            |        | 2,706        |        |        |        | 2,326 |       
|                                           |                                                                                                                    | Other customers               |                            |        | 1,590        |        |        |        | 1,438 |       
|                                           | Retained interest in receivables, net                                                                              |                               |                            | 893    |              |        |        | 717    |      
|                                           | Inventories, net                                                                                                   |                               |                            | 2,054  |              |        |        | 1,996  |      
|                                           | Deferred income taxes                                                                                              |                               |                            | 364    |              |        |        | 420    |      
|                                           | Prepaid expenses and other                                                                                         |                               |                            | 282    |              |        |        | 269    |      
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                           |                                                                                                                    |                               | Total current assets       |        |              | 8,697  |        |        |       | 8,046  | 
|Long-term assets:                          |                                                                                                                    |                               |                            |        |              |        |        |       
|                                           | Property, net                                                                                                      |                               |                            | 6,067  |              |        |        | 6,167  |      
|                                           | Deferred income taxes                                                                                              |                               |                            | 3,929  |              |        |        | 3,835  |      
|                                           | Goodwill, net                                                                                                      |                               |                            | 770    |              |        |        | 776    |      
|                                           | Pension intangible assets                                                                                          |                               |                            | 1,167  |              |        |        | 1,167  |      
|                                           | Other                                                                                                              |                               |                            | 902    |              |        |        | 913    |      
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                           |                                                                                                                    |                               | Total assets               |        | $            | 21,532 |        |        | $     | 20,904 | 
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                          
|LIABILITIES AND STOCKHOLDERS
    EQUITY  
|Current liabilities:                       |                                                                                                                    |                               |                            |        |              |        |        |       
|                                           | Notes payable and current portion of long-term
    debt                                                            |                               | $                          | 977    |              |        | $      | 801    |      
|                                           | Accounts payable                                                                                                   |                               |                            | 3,333  |              |        |        | 3,158  |      
|                                           | Accrued liabilities                                                                                                |                               |                            | 2,545  |              |        |        | 2,232  |      
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                           |                                                                                                                    |                               | Total current liabilities  |        |              | 6,855  |        |        |       | 6,191  | 
|Long-term liabilities:                     |                                                                                                                    |                               |                            |        |              |        |        |       
|                                           | Long-term debt                                                                                                     |                               |                            | 2,022  |              |        |        | 2,022  |      
|                                           | Junior subordinated notes due to Delphi
    Trust I and II                                                         |                               |                            | 412    |              |        |        | 412    |      
|                                           | Pension benefits                                                                                                   |                               |                            | 3,403  |              |        |        | 3,574  |      
|                                           | Postretirement benefits other than pensions                                                                        |                               |                            | 5,860  |              |        |        | 5,697  |      
|                                           | Other                                                                                                              |                               |                            | 1,427  |              |        |        | 1,438  |      
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                           |                                                                                                                    |                               | Total liabilities          |        |              | 19,979 |        |        |       | 19,334 | 
|                                           |                                                                                                                    |                               |                            |        |              |       
|Stockholders equity:                      |                                                                                                                    |                               |                            |        |              |        |        |       
|                                           | Common stock, $0.01 par value,
    1,350 million shares authorized, 565 million shares
    issued in 2004 and 2003 |                               |                            | 6      |              |        |        | 6      |      
|                                           | Additional paid-in capital                                                                                         |                               |                            | 2,672  |              |        |        | 2,667  |      
|                                           | Retained earnings                                                                                                  |                               |                            | 1,256  |              |        |        | 1,241  |      
|                                           | Minimum pension liability                                                                                          |                               |                            | (2,118 | )            |        |        | (2,118 | )    
|                                           | Accumulated other comprehensive loss, excluding
    minimum pension liability                                      |                               |                            | (188   | )            |        |        | (151   | )    
|                                           | Treasury stock, at cost (4.7 million shares
    in 2004 and 2003)                                                  |                               |                            | (75    | )            |        |        | (75    | )    
|                                           |                                                                                                                    |                               |                            |        |              |       
|                                           |                                                                                                                    |                               | Total stockholders equity |        |              | 1,553  |        |        |       | 1,570  | 
|                                           |                                                                                                                    |                               |                            |        |              |       
|Total liabilities and stockholders equity |                                                                                                                    | $                             | 21,532                     |        |              | $      | 20,904 |       
|                                           |                                                                                                                    |                               |                            |        |              |       

See notes to consolidated financial statements.

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DELPHI CORPORATION



CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


|                                      |                                                                                         |                                                                   |                                                         |      |      |      |   |       |      |      |  
|------------------------------------- | --------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------------------------- | ---- | ---- | ---- | - | ----- | ---- | ---- | -
|                                      |                                                                                         |                                                                  
|                                      |                                                                                         | Three Months Ended                                                |                                                        
|                                      |                                                                                         | March 31,                                                         |                                                        
|                                      |                                                                                         |                                                                   |                                                        
|                                      |                                                                                         | 2004                                                              |                                                         |      | 2003 |     
|                                      |                                                                                         |                                                                   |                                                         |      |      |     
|                                      |                                                                                         |                                                                  
|                                      |                                                                                         | (in millions)                                                     |                                                        
|Cash flows from operating activities: |                                                                                         |                                                                   |                                                         |      |      |      |   |      
|                                      | Net income                                                                              |                                                                   | $                                                       | 54   |      |      | $ | 127   |     
|                                      | Adjustments to reconcile net income to net cash
    provided by operating activities:   |                                                                   |                                                         |      |      |      |   |       |     
|                                      |                                                                                         | Depreciation and amortization                                     |                                                         |      | 279  |      |   |       | 253  |     
|                                      |                                                                                         | Deferred income taxes                                             |                                                         |      | (49  | )    |   |       | 3    |     
|                                      |                                                                                         | Employee and product line charges                                 |                                                         |      | 38   |      |   |       |     |     
|                                      | Changes in operating assets and liabilities:                                            |                                                                   |                                                         |      |      |      |   |       |     
|                                      |                                                                                         | Accounts receivable and retained interest in
    receivables, net |                                                         |      | (708 | )    |   |       | (474 | )   
|                                      |                                                                                         | Inventories, net                                                  |                                                         |      | (58  | )    |   |       | 1    |     
|                                      |                                                                                         | Prepaid expenses and other                                        |                                                         |      | 13   |      |   |       | 68   |     
|                                      |                                                                                         | Accounts payable                                                  |                                                         |      | 175  |      |   |       | 153  |     
|                                      |                                                                                         | Employee and product line charge obligations                      |                                                         |      | (141 | )    |   |       | (24  | )   
|                                      |                                                                                         | Accrued and other long-term liabilities                           |                                                         |      | 408  |      |   |       | (85  | )   
|                                      |                                                                                         | Other                                                             |                                                         |      | 3    |      |   |       | (18  | )   
|                                      |                                                                                         |                                                                   |                                                         |      |      |     
|                                      |                                                                                         |                                                                   | Net cash provided by operating activities               |      |      | 14   |   |       |      | 4    |  
|                                      |                                                                                         |                                                                   |                                                         |      |      |     
|Cash flows from investing activities: |                                                                                         |                                                                   |                                                         |      |      |      |   |      
|                                      | Capital expenditures                                                                    |                                                                   |                                                         | (221 | )    |      |   | (221  | )   
|                                      | Other                                                                                   |                                                                   |                                                         | (9   | )    |      |   | 27    |     
|                                      |                                                                                         |                                                                   |                                                         |      |      |     
|                                      |                                                                                         |                                                                   | Net cash used in investing activities                   |      |      | (230 | ) |       |      | (194 | )
|                                      |                                                                                         |                                                                   |                                                         |      |      |     
|Cash flows from financing activities: |                                                                                         |                                                                   |                                                         |      |      |      |   |      
|                                      | Net proceeds from (repayments of) borrowings
    under credit facilities and other debt |                                                                   |                                                         | 185  |      |      |   | (36   | )   
|                                      | Dividend payments                                                                       |                                                                   |                                                         | (39  | )    |      |   | (39   | )   
|                                      | Issuances of treasury stock                                                             |                                                                   |                                                         |     |      |      |   | 1     |     
|                                      |                                                                                         |                                                                   |                                                         |      |      |     
|                                      |                                                                                         |                                                                   | Net cash provided by (used in) financing
    activities |      |      | 146  |   |       |      | (74  | )
|                                      |                                                                                         |                                                                   |                                                         |      |      |     
|                                      | Effect of exchange rate fluctuations on cash and
    cash equivalents                   |                                                                   |                                                         | (2   | )    |      |   | 5     |     
|                                      |                                                                                         |                                                                   |                                                         |      |      |     
|                                      | Decrease in cash and cash equivalents                                                   |                                                                   |                                                         | (72  | )    |      |   | (259  | )   
|                                      | Cash and cash equivalents at beginning of period                                        |                                                                   |                                                         | 880  |      |      |   | 1,014 |     
|                                      |                                                                                         |                                                                   |                                                         |      |      |     
|                                      | Cash and cash equivalents at end of period                                              |                                                                   | $                                                       | 808  |      |      | $ | 755   |     
|                                      |                                                                                         |                                                                   |                                                         |      |      |     

See notes to consolidated financial statements.

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DELPHI CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1. BASIS OF PRESENTATION

General
Delphi Corporation (Delphi) is a world-leading
supplier of vehicle electronics, transportation components,
integrated systems and modules and other electronic technology.
The consolidated financial statements and notes thereto included
in this report should be read in conjunction with our
consolidated financial statements and notes thereto included in
our 2003 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The consolidated financial
statements include the accounts of Delphi and its subsidiaries.

All significant intercompany transactions and
balances between consolidated Delphi businesses have been
eliminated. In the opinion of management, all adjustments,
consisting of only normal recurring items, which are necessary
for a fair presentation have been included. The results for
interim periods are not necessarily indicative of results which
may be expected from any other interim period or for the full
year and may not necessarily reflect the consolidated results of
operations, financial position and cash flows of Delphi in the
future.

Certain prior period amounts have been
reclassified to conform to current period presentation.

Earnings Per
Share Basic earnings
per share amounts were computed using weighted average shares
outstanding for each respective period. Diluted earnings per
share also reflect the weighted average impact from the date of
issuance of all potentially dilutive securities, unless
inclusion would not have had a dilutive effect. Certain
outstanding stock options were not included in the computation
of diluted shares because the options underlying exercise
prices were greater than the average market prices for Delphi
stock on March 31, 2004 and 2003 (approximately
73 million stock options were not dilutive at
March 31, 2004). Actual weighted average shares
outstanding used in calculating basic and diluted earnings per
share were:

|                                    |  |                    |         |  |      |  |         | 
|----------------------------------- |  | ------------------ | ------- |  | ---- |  | ------- | 
|                                    |  |                   
|                                    |  | Three Months Ended |        
|                                    |  | March 31,          |        
|                                    |  |                    |        
|                                    |  | 2004               |         |  | 2003 | 
|                                    |  |                    |         |  |      | 
|                                    |  |                   
|                                    |  | (in thousands)     |        
|Weighted average shares outstanding |  |                    | 560,340 |  |      |  | 559,561 | 
|Effect of dilutive securities       |  |                    | 3,282   |  |      |  | 170     | 
|                                    |  |                    |         |  |      | 
|Diluted shares outstanding          |  |                    | 563,622 |  |      |  | 559,731 | 
|                                    |  |                    |         |  |      | 

The Board of Directors declared a dividend on
Delphi common stock of $0.07 per share on
March 1, 2004, which was paid on April 12, 2004
to holders of record on March 15, 2004. The dividend
declared on December 3, 2003 was paid on January 14,
2004.

Stock-Based
Compensation As
allowed under Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for
Stock-Based Compensation, Delphi accounts for a majority
of its stock-based compensation using the intrinsic value method
in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees, and related interpretations. There were no
stock options granted during the three months ended
March 31, 2004 and 2003.

6



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If we accounted for all stock-based compensation
using the fair value recognition provisions of
SFAS No. 123 and related amendments, our net income
and basic and diluted earnings per share would have been as
follows:

|                                                                                                                                            |                                 |                      |    |      |      |   |     |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | -------------------- | -- | ---- | ---- | - | --- | ---- | 
|                                                                                                                                            |                                 |                     
|                                                                                                                                            |                                 | Three Months Ended   |   
|                                                                                                                                            |                                 | March 31,            |   
|                                                                                                                                            |                                 |                      |   
|                                                                                                                                            |                                 | 2004                 |    |      | 2003 |  
|                                                                                                                                            |                                 |                      |    |      |      |  
|                                                                                                                                            |                                 |                     
|                                                                                                                                            |                                 | (in millions, except |   
|                                                                                                                                            |                                 | per share amounts)   |   
|Net income, as reported                                                                                                                     |                                 | $                    | 54 |      |      | $ | 127 |     
|Less: Total stock-based employee compensation
    expense determined under fair value method for all awards, net
    of related tax effects |                                 |                      | 3  |      |      |   | 3   |     
|                                                                                                                                            |                                 |                      |    |      |      |  
|Pro forma net income                                                                                                                        |                                 | $                    | 51 |      |      | $ | 124 |     
|                                                                                                                                            |                                 |                      |    |      |      |  
|Earnings per share:                                                                                                                         |                                 |                      |    |      |      |   |     |     
|                                                                                                                                            | Basic and diluted  as reported |                      | $  | 0.10 |      |   | $   | 0.23 | 
|                                                                                                                                            |                                 |                      |    |      |      |  
|                                                                                                                                            | Basic and diluted  pro forma   |                      | $  | 0.09 |      |   | $   | 0.22 | 
|                                                                                                                                            |                                 |                      |    |      |      |  

During 1999, Delphi awarded certain employees
approximately 3 million restricted stock units, which were
delivered to them as stock during the first quarter of 2003 in
accordance with the original award terms. During the first
quarter of 2003, we also cancelled approximately 20 million
shares available for future grants under the terms of certain of
Delphis stock option plans. During the fourth quarter of
2003, Delphi completed a self-tender for certain employee stock
options having an exercise price in excess of $17 per
share. Approximately 8.4 million shares were exchanged
under this program. As of March 31, 2004, there are
approximately 16 million shares available for future grants
under these stock option plans.



|   |                                  
|-- | ---------------------------------
|2. | EMPLOYEE AND PRODUCT LINE CHARGES

In the third quarter of 2003, Delphi approved
plans to reduce our U.S. hourly workforce by up to 5,000
employees, our U.S. salaried workforce by approximately 500
employees, and our non-U.S. workforce by approximately
3,000 employees. Our plans entail reductions to our workforce
through a variety of methods including regular attrition and
retirements, and voluntary and involuntary separations, as
applicable. Under certain elements of the plans, the
International Union, United Automobile, Aerospace, and
Agricultural Implement Workers of America (UAW)
hourly employees may flow back to General Motors
(GM). As required under generally accepted
accounting principles, we record the costs associated with the
flowback to GM as the employees accept the offer to exit Delphi.
We expect to incur total charges related to these initiatives of
approximately $807 million (pre-tax) through
December 31, 2004, of which $90 million
($52 million in cost of sales and $38 million in
employee and product line charges) was recorded during the first
quarter of 2004 and $616 million was recorded in 2003. We
expect to incur the remaining estimated charges of
$101 million (pre-tax) related to the hourly employee
reductions, including employee costs during periods they are
idled prior to separation, and to the other structural cost
initiatives during the remainder of 2004. During the first
quarter of 2004, approximately 2,150 U.S. hourly employees
flowed back to GM or retired while 400 U.S. salaried
employees and 1,350 non-U.S. employees retired or separated
under a variety of programs. Cumulatively through March 31,
2004, approximately 3,750 U.S. hourly employees, 500
U.S. salaried employees, and 2,900 non-U.S. employees
have left the company pursuant to these plans.

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Following is a summary of the activity in the
employee and product line reserve (in millions):

|                                  |                                 |                |     |      |            |   |   |       |  |   |     |      |     
|--------------------------------- | ------------------------------- | -------------- | --- | ---- | ---------- | - | - | ----- |  | - | --- | ---- | ----
|Employee and Product Line Charges |                                 | Employee Costs |     |      | Exit Costs |   |   | Total | 
|                                  |                                 |                |     |      |            |   |   |       | 
|Balance at January 1, 2004        |                                 | $              | 246 |      |            | $ | 5 |       |  | $ | 251 |     
|                                  | First quarter 2004 charges      |                |     | 38   |            |   |   |      |  |   |     | 38   |     
|                                  | Usage in the first quarter 2004 |                |     | (145 | )          |   |   |      |  |   |     | (145 | )(a)
|                                  |                                 |                |     |      |            |   |   |       | 
|Balance at March 31, 2004         |                                 | $              | 139 |      |            | $ | 5 |       |  | $ | 144 | (b) 
|                                  |                                 |                |     |      |            |   |   |       | 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The total cash paid in the first quarter of 2004
    was $141 million, as shown on our consolidated Statement of
    Cash Flows. The $145 million of usage in the first quarter
    includes $4 million of non-cash special termination pension
    and postretirement benefits. In addition, we incurred
    $52 million of cash costs associated with the 2004 charges,
    which were recorded in cost of sales.
|   
|(b) | This amount is included in accrued liabilities in
    the accompanying consolidated balance sheet.                                                                                                                                                                                                                                                                                                                 

The estimated cash impact of the 2003 initiatives
is approximately $0.7 billion, of which $193 million
was paid in the first quarter of 2004 and $205 million was
paid in 2003. We expect that up to $0.2 billion will be
paid in subsequent quarters in 2004 and the remainder in 2005.



|   |                     
|-- | --------------------
|3. | ASSET SECURITIZATION

We maintain a revolving accounts receivable
securitization program in the United States
(U.S. Facility Program). Under this
U.S. Facility Program, we sell a portion of our U.S. and
Canadian trade receivables to Delphi Receivables LLC
(DR), a wholly-owned consolidated special purpose
entity. DR may then sell, on a non-recourse basis (subject to
certain limited exceptions), an undivided interest in the
receivables to asset-backed, multi-seller commercial paper
Conduits. The sale of the undivided interest in the receivables
from DR to the Conduits is accounted for as a sale under the
provisions of SFAS No. 140, Accounting for the
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities (SFAS 140). The remaining
undivided interest is retained by DR. As of March 31, 2004
the retained interest in receivables, net was $893 million.
We assess the recoverability of the retained interest on a
quarterly basis and adjust the carrying value as necessary.

At the time DR sells the undivided interest to
the Conduits the sale is recorded at fair value with the
difference between the carrying amount and fair value of the
assets sold included in operating income as a loss on sale. This
difference between carrying value and fair value is principally
the estimated discount inherent in the U.S. Facility
Program, which reflects the borrowing costs as well as fees and
expenses of the Conduits (approximately 1.4% to 1.6%), and the
length of time the receivables are expected to be outstanding.
The loss on sale was approximately $0.7 million for the
three months ended March 31, 2004.

The U.S. Facility Program, which is among
Delphi, DR, the Conduits, the sponsoring banks and their agents,
was renewed on March 29, 2004 and extended through
March 28, 2005. The terms and conditions are substantially
the same; however, the U.S. Facility Program has been
increased from $500 million to $600 million. The
program can be extended for additional 364-day periods based
upon the mutual agreement of the parties. Additionally, the
U.S. Facility Program contains a financial covenant and
certain other covenants similar to our revolving credit
facilities that, if not met, could result in a termination of
the program. At March 31, 2004, we were in compliance with
all such covenants.

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The table below summarizes certain cash flows
received from and paid to the Conduits under the revolving
U.S. Facility Program. There were no receivables sold
during the first quarter of 2003.

|                                                                          |  |                    |      |  
|------------------------------------------------------------------------- |  | ------------------ | ---- | -
|                                                                          |  | Three Months Ended |     
|                                                                          |  | March 31, 2004     |     
|                                                                          |  |                    |     
|                                                                          |  | (in millions)      |     
|Undivided interests sold at beginning of period                           |  | $                  | 323  |  
|Proceeds from new securitizations (sale of
    undivided interests)       |  |                    | 725  |  
|Collections related to undivided interest sold(a)                         |  |                    | (873 | )
|Collections reinvested through sale of additional
    undivided interests |  |                    | 150  |  
|                                                                          |  |                    |     
|Undivided interests sold                                                  |  | $                  | 325  |  
|                                                                          |  |                    |     



|    |                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Of the collections received on the undivided
    interests sold, for the three months ended
    March 31, 2004, $723 million was remitted to the
    Conduits and $150 million was reinvested.



|   |                 
|-- | ----------------
|4. | INVENTORIES, NET

Inventories, net consisted of:

|                                                  |                   |               |       |       |              |   |       |       | 
|------------------------------------------------- | ----------------- | ------------- | ----- | ----- | ------------ | - | ----- | ----- | 
|                                                  |                   | March 31,     |       |       | December 31, |  
|                                                  |                   | 2004          |       |       | 2003         |  
|                                                  |                   |               |       |       |              |  
|                                                  |                   |              
|                                                  |                   | (in millions) |      
|Productive material, work-in-process and supplies |                   | $             | 1,581 |       |              | $ | 1,518 |      
|Finished goods                                    |                   |               | 473   |       |              |   | 478   |      
|                                                  |                   |               |       |       |              |  
|                                                  | Total inventories |               | $     | 2,054 |              |   | $     | 1,996 | 
|                                                  |                   |               |       |       |              |  



|   |                                              
|-- | ---------------------------------------------
|5. | PENSION AND OTHER POSTRETIREMENT
    BENEFITS

Pension plans covering unionized employees in the
U.S. generally provide benefits of negotiated stated
amounts for each year of service, as well as supplemental
benefits for employees who qualify for retirement before normal
retirement age. The benefits provided by the plans covering
U.S. salaried employees are generally based on years of
service and salary history. Certain Delphi employees also
participate in nonqualified pension plans covering executives,
which are not funded. Such plans are based on targeted wage
replacement percentages, and are generally not significant to
Delphi. Delphis funding policy with respect to its
qualified plans is to contribute at least the minimum amounts
required by applicable laws and regulations.

The 2004 and 2003 amounts shown below reflect the
defined benefit pension and other postretirement benefit expense
for the three months ended March 31 for each year for
U.S. salaried and hourly employees:

|                                   |                           |                  |      |                |          |       |      |      |  |   |      |     |  |   |     |     | 
|---------------------------------- | ------------------------- | ---------------- | ---- | -------------- | -------- | ----- | ---- | ---- |  | - | ---- | --- |  | - | --- | --- | 
|                                   |                           |                  |      |                |          |      
|                                   |                           |                  |      |                |          | Other |     
|                                   |                           |                  |      | Postretirement |         
|                                   |                           | Pension Benefits |      |                | Benefits |      
|                                   |                           |                  |      |                |          |      
|                                   |                           | 2004             |      |                | 2003     |       |      | 2004 |  |   | 2003 |    
|                                   |                           |                  |      |                |          |       |      |      |  |   |      |    
|                                   |                           |                 
|                                   |                           | (in millions)    |     
|Service cost                       |                           | $                | 71   |                |          | $     | 65   |      |  | $ | 44   |     |  | $ | 42  |    
|Interest cost                      |                           |                  | 174  |                |          |       | 161  |      |  |   | 124  |     |  |   | 115 |    
|Expected return on plan assets     |                           |                  | (181 | )              |          |       | (162 | )    |  |   |     |     |  |   |    |    
|Amortization of prior service cost |                           |                  | 35   |                |          |       | 23   |      |  |   | (1   | )   |  |   |    |    
|Amortization of net loss           |                           |                  | 40   |                |          |       | 31   |      |  |   | 30   |     |  |   | 18  |    
|Special termination benefits       |                           |                  | 3    |                |          |       |     |      |  |   | 1    |     |  |   |    |    
|                                   |                           |                  |      |                |          |       |      |      |  |   |      |    
|                                   | Net periodic benefit cost |                  | $    | 142            |          |       | $    | 118  |  |   | $    | 198 |  |   | $   | 175 | 
|                                   |                           |                  |      |                |          |       |      |      |  |   |      |    

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Certain of Delphis
non-U.S. subsidiaries also sponsor defined benefit pension
plans. The pension expense for these locations for the three
months ended March 31, 2004 and 2003 was $22 million
and $16 million, respectively. During the three months
ended March 31, 2004, Delphi made no contributions to its
pension plans.

Other postretirement benefits in the first
quarter of 2004 increased by $23 million compared to the
first quarter of 2003 including the mitigating impact of the
Medicare Prescription Drug, Improvement and
Modernization Act of 2003, (the Act) which
reduced expense by $16 million, including service cost,
interest cost and amortization of the actuarial experience gain.
The total impact of the Act on our actuarial liability was
$0.5 billion and is being accounted for as an actuarial
gain that will be amortized as a reduction of our periodic cost
(expense) and balance sheet liability over the next ten to
twelve years. Specific authoritative guidance, when issued by
the Financial Accounting Standards Board (FASB),
could require us to re-determine the accounting for the impact
of this legislation.



|   |                                   
|-- | ----------------------------------
|6. | DERIVATIVES AND HEDGING ACTIVITIES

Delphi is exposed to market risk, such as
fluctuations in foreign currency exchange rates, commodity
prices and changes in interest rates. To manage the volatility
relating to these exposures, we aggregate the exposures on a
consolidated basis to take advantage of natural offsets. For
exposures that are not offset within our operations, we enter
into various derivative transactions pursuant to our risk
management policies. Designation is performed on a transaction
basis to support hedge accounting. The changes in fair value of
these hedging instruments are offset in part or in whole by
corresponding changes in the fair value or cash flows of the
underlying exposures being hedged. We assess the initial and
ongoing effectiveness of our hedging relationships in accordance
with our documented policy. We do not hold or issue derivative
financial instruments for trading purposes.

Gains and losses on derivatives qualifying as
cash flow hedges are recorded in other comprehensive income
(OCI) to the extent that hedges are effective until
the underlying transactions are recognized in earnings. Net
gains included in OCI as of March 31, 2004, were
$44 million after-tax ($70 million pre-tax). Of this
pre-tax total, a gain of approximately $60 million is
expected to be included in cost of sales within the next
12 months and a gain of approximately $4 million is
expected to be included in subsequent periods. A loss of
approximately $2 million is expected to be included in
depreciation and amortization expense over the lives of the
related fixed assets and a gain of approximately $8 million
is expected to be included in interest expense over the term of
the related debt. The unrealized amounts in OCI will fluctuate
based on changes in the fair value of open contracts at each
reporting period. Cash flow hedges are discontinued when it is
probable that the original forecasted transactions will not
occur. The amount included in cost of sales related to hedge
ineffectiveness and the time value of options was not material.

10



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|   |                     
|-- | --------------------
|7. | STOCKHOLDERS EQUITY

Changes in stockholders equity for the
three months ended March 31, 2004 were:

|                           |                                                                           |                            |     |   |            |   |   |          |  |               |          |   |  |           |       |          |       |   |               |       |  |   |        |     |   |   |     |   |  |   |       |     |    | 
|-------------------------- | ------------------------------------------------------------------------- | -------------------------- | --- | - | ---------- | - | - | -------- |  | ------------- | -------- | - |  | --------- | ----- | -------- | ----- | - | ------------- | ----- |  | - | ------ | --- | - | - | --- | - |  | - | ----- | --- | -- | 
|                           |                                                                           |                            |     |   |            |   |   |          |  |               |          |   |  |          
|                           |                                                                           |                            |     |   |            |   |   |          |  | Accumulated   |          |   |  |           |      
|                           |                                                                           |                            |     |   |            |   |   |          |  | Other         |          |   |  |           |      
|                           |                                                                           |                            |     |   |            |   |   |          |  | Comprehensive |          |   |  |           |      
|                           |                                                                           |                            |     |   |            |   |   |          |  | Loss          |          |   |  |           |      
|                           |                                                                           |                            |     |   |            |   |   |          |  |               |          |   | 
|                           |                                                                           | Common Stock               |     |   | Additional |   |   |          |  | Minimum       |          |   |  |           |       |          | Total |  
|                           |                                                                           |                            |     |   | Paid-in    |   |   | Retained |  |               | Pension  |   |  |           |       | Treasury |       |   | Stockholders |      
|                           |                                                                           | Shares                     |     |   | Amount     |   |   | Capital  |  |               | Earnings |   |  | Liability |       |          | Other |   |               | Stock |  |   | Equity |    
|                           |                                                                           |                            |     |   |            |   |   |          |  |               |          |   |  |           |       |          |       |   |               |       |  |   |        |    
|                           |                                                                           |                           
|                           |                                                                           | (in millions)              |    
|Balance at January 1, 2004 |                                                                           |                            | 565 |   |            | $ | 6 |          |  | $             | 2,667    |   |  | $         | 1,241 |          |       | $ | (2,118        | )     |  | $ | (151   | )   |   | $ | (75 | ) |  | $ | 1,570 |    
|                           | Net income                                                                |                            |     |  |            |   |   |         |  |               |          |  |  |           |       | 54       |       |   |               |      |  |   |        |    |   |   |     |  |  |   |       | 54  |   
|                           | Currency translation adjustments and other, net
    of tax                |                            |     |  |            |   |   |         |  |               |          |  |  |           |       |         |       |   |               |      |  |   |        | (50 | ) |   |     |  |  |   |       | (50 | ) 
|                           | Net change in unrecognized gain on derivative
    instruments, net of tax |                            |     |  |            |   |   |         |  |               |          |  |  |           |       |         |       |   |               |      |  |   |        | 13  |   |   |     |  |  |   |       | 13  |   
|                           |                                                                           |                            |     |   |            |   |   |          |  |               |          |   |  |           |       |          |       |   |               |       |  |   |        |    
|                           |                                                                           | Total comprehensive income |     |   |            |   |   |          |  |               |          |   |  |           |       |          |       |   |               |       |  |   |        |     |   |   |     |   |  |   |       |     | 17 | 
|                           | Shares for employee benefit plans                                         |                            |     |  |            |   |   |         |  |               |          | 5 |  |           |       |         |       |   |               |      |  |   |        |    |   |   |     |  |  |   |       | 5   |   
|                           | Dividends                                                                 |                            |     |  |            |   |   |         |  |               |          |  |  |           |       | (39      | )     |   |               |      |  |   |        |    |   |   |     |  |  |   |       | (39 | ) 
|                           |                                                                           |                            |     |   |            |   |   |          |  |               |          |   |  |           |       |          |       |   |               |       |  |   |        |    
|Balance at March 31, 2004  |                                                                           |                            | 565 |   |            | $ | 6 |          |  | $             | 2,672    |   |  | $         | 1,256 |          |       | $ | (2,118        | )     |  | $ | (188   | )   |   | $ | (75 | ) |  | $ | 1,553 |    
|                           |                                                                           |                            |     |   |            |   |   |          |  |               |          |   |  |           |       |          |       |   |               |       |  |   |        |    



|   |                  
|-- | -----------------
|8. | SEGMENT REPORTING

Effective January 1, 2004, we realigned our
business sectors by combining the interior product lines into
the Dynamics, Propulsion, Thermal & Interior Sector,
which were previously included in the Electrical, Electronics,
Safety & Interior Sector. The realignment is designed
to strengthen our customer and market focus by bringing together
similar product portfolios and to enhance our position as an
integrated supplier. This realignment has a minor impact on the
sectors results. Under the realignment, we have three reporting
segments that are grouped on the basis of similar product,
market and operating factors:



| |   |                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Dynamics, Propulsion, Thermal & Interior
    Sector, which includes selected businesses from our energy and
    engine management systems, chassis, steering, thermal systems
    and interior product lines.                                                                 
|
| |  | Electrical, Electronics & Safety Sector,
    which includes selected businesses from our automotive
    electronics, audio, consumer and aftermarket products,
    communication systems, safety and power and signal distribution
    systems product lines.                 
|
| |  | Automotive Holdings Group (AHG),
    which is comprised of product lines and plant sites that do not
    meet our targets for net income or other financial metrics,
    allowing for consistent and targeted management focus on finding
    solutions to these businesses.

The realignment is designed to increase focus on
products and services for the greatest long-term benefit for
Delphi while at the same time placing an equal focus on
businesses requiring additional management attention. It is a
further step in the implementation of our long-term portfolio
plans.

Management reviews our sector operating results
for purposes of making operating decisions and assessing
performance, excluding certain charges in the first quarter of
2004 of $90 million, $52 million in cost of sales and
$38 million in employee and product line charges (the
2004 Charges). Accordingly, we have presented our
sector results excluding such charges. Included below are sales
and operating data for

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our realigned sectors for the three months ended
March 31, 2004 and 2003. The 2003 data has been
reclassified to conform with the current sector alignment.


|                            |                                |                 |   |       |               |  |   |            |       |  |          |      |      |       |   |      |       |   |   |       |       | 
|--------------------------- | ------------------------------ | --------------- | - | ----- | ------------- |  | - | ---------- | ----- |  | -------- | ---- | ---- | ----- | - | ---- | ----- | - | - | ----- | ----- | 
|                            |                                | Dynamics,       |   |       |               |  |   |            |       |  |         
|                            |                                | Propulsion,     |   |       | Electrical,   |  |   | Automotive |       |  |          |      |     
|                            |                                | Thermal &       |   |       | Electronics & |  |   | Holdings   |       |  |          |      |     
|                            |                                | Interior        |   |       | Safety        |  |   | Group      |       |  | Other(a) |      |      | Total |  
|                            |                                |                 |   |       |               |  |   |            |       |  |          |      |      |       |  
|                            |                                |                
|                            |                                | (in millions)   |  
|For the Three Months Ended: |                                |                 |   |       |               |  |   |            |       |  |          |      |      |       |   |      |       |   |   |      
|March 31, 2004              |                                |                 |   |       |               |  |   |            |       |  |          |      |      |       |   |      |       |   |   |      
|                            | Net sales to GM and affiliates |                 | $ | 2,156 |               |  | $ | 1,611      |       |  | $        | 423  |      |       | $ |     |       |   | $ | 4,190 |      
|                            | Net sales to other customers   |                 |   | 1,325 |               |  |   | 1,799      |       |  |          | 97   |      |       |   |     |       |   |   | 3,221 |      
|                            | Inter-sector net sales         |                 |   | 219   |               |  |   | 121        |       |  |          | 206  |      |       |   | (546 | )     |   |   |      |      
|                            |                                |                 |   |       |               |  |   |            |       |  |          |      |      |       |  
|                            |                                | Total net sales |   | $     | 3,700         |  |   | $          | 3,531 |  |          | $    | 726  |       |   | $    | (546  | ) |   | $     | 7,411 | 
|                            |                                |                 |   |       |               |  |   |            |       |  |          |      |      |       |  
|                            | Sector operating income (loss) |                 | $ | 72    | (b)           |  | $ | 282        | (b)   |  | $        | (127 | )(b) |       | $ | (16  | ) (b) |   | $ | 211   | (b)  
|                           
|March 31, 2003              |                                |                 |   |       |               |  |   |            |       |  |          |      |      |       |   |      |       |   |   |      
|                            | Net sales to GM and affiliates |                 | $ | 2,325 |               |  | $ | 1,724      |       |  | $        | 506  |      |       | $ |     |       |   | $ | 4,555 |      
|                            | Net sales to other customers   |                 |   | 1,139 |               |  |   | 1,388      |       |  |          | 100  |      |       |   |     |       |   |   | 2,627 |      
|                            | Inter-sector net sales         |                 |   | 198   |               |  |   | 110        |       |  |          | 216  |      |       |   | (524 | )     |   |   |      |      
|                            |                                |                 |   |       |               |  |   |            |       |  |          |      |      |       |  
|                            |                                | Total net sales |   | $     | 3,662         |  |   | $          | 3,222 |  |          | $    | 822  |       |   | $    | (524  | ) |   | $     | 7,182 | 
|                            |                                |                 |   |       |               |  |   |            |       |  |          |      |      |       |  
|                            | Sector operating income (loss) |                 | $ | 134   |               |  | $ | 246        |       |  | $        | (138 | )    |       | $ | (14  | )     |   | $ | 228   |      



|    |                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Other includes activity not allocated to the
    product sectors and elimination of inter-sector transactions.                                                                                                              
|   
|(b) | Excludes the 2004 Charges of $44 million for
    Dynamics, Propulsion, Thermal & Interior,
    $20 million for Electrical, Electronics & Safety,
    $22 million for Automotive Holdings Group and
    $4 million for Other.



|   |                              
|-- | -----------------------------
|9. | COMMITMENTS AND CONTINGENCIES

Delphi is from time to time subject to various
legal actions and claims incidental to its business, including
those arising out of alleged defects, breach of contracts,
product warranties, intellectual property matters, environmental
matters, and employment-related matters.

As previously disclosed, with respect to
environmental matters, Delphi received notices that it is a
potentially responsible party (PRP) in proceedings
at various sites, including the Tremont City Landfill Site
located in Tremont, Ohio. The Tremont City Landfill Site
proceeding, which is alleged to concern ground water
contamination, is in the early stages of investigation and
involves multiple other PRPs. Based on the information gathered
to date, Delphi has been identified as the largest
waste-generator PRP; however, we expect that other parties,
including landfill operator and transporter PRPs, will
ultimately have to share a significant portion of any overall
site costs. In September 2002, Delphi and other PRPs entered
into a Consent Order with the Environmental Protection Agency
(EPA) to perform a Remedial Investigation and
Feasibility Study concerning a portion of the site. The
investigation is expected to be completed during 2005, as
various EPA reviews are required through each phase of the
study. Current preliminary assessments indicate that a
reasonably possible outcome of the investigative study is
capping and future monitoring of this site, which would
substantially limit future remediation costs. Based on cost
estimates received to date, we have included an estimate of our
share of the potential costs of capping and future monitoring of
the site plus the cost to complete the investigation in our
overall reserve estimate. Because the scope of the investigation
and the extent of the required remediation are still being
determined, it is possible that the final resolution of this
matter may require that we make material future expenditures for
remediation, possibly over an extended period of time and
possibly in excess of our existing reserves. As the
investigation proceeds, we will periodically re-assess any
potential remediation costs and, as appropriate, our overall
environmental reserves.

12



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##### Table of Contents



With respect to warranty matters, as previously
disclosed, a few customers have advised Delphi that they intend
to pursue warranty claims vigorously. For each of the three
month periods ended March 31, 2004 and 2003, our
warranty expenses have been less than 0.4% of cost of sales.
Although we cannot ensure that the future costs of warranty
claims by customers will not be material, we believe our
established reserves are adequate to cover potential warranty
settlements. However, the final amounts determined to be due
related to these matters could differ materially from our
recorded estimates. Additionally, in connection with our
separation from GM, we agreed to indemnify GM against
substantially all losses, claims, damages, liabilities or
activities arising out of or in connection with our business
post-separation. Due to the nature of such indemnities we are
not able to estimate the maximum amount.

With respect to intellectual property matters, in
May 2001, Litex, Inc. (Litex) filed suit
against Delphi in federal court in the District of Massachusetts
alleging infringement of certain patents regarding methods to
reduce engine exhaust emissions. On November 12, 2003,
during trial, the parties reached an agreement to dismiss the
litigation with prejudice in favor of an agreement to submit the
case to binding arbitration. Arbitration proceedings were held
during the first week of April and the parties are awaiting a
decision.

Litigation is subject to many uncertainties, and
the outcome of individual litigated matters is not predictable
with assurance. It is the opinion of management that the outcome
of such matters will not have a material adverse impact on the
consolidated financial position, results of operations or cash
flows of Delphi.

13



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##### Table of Contents






Item 2. MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS


Executive Summary

Our first quarter 2004 net sales were
$7.4 billion, up from $7.2 billion in the first
quarter 2003. Non-GM revenues were $3.2 billion, or 43% of
sales, up 23% from the first quarter of 2003. Our first quarter
2004 GM sales were $4.2 billion, down 8% from the first
quarter of 2003. Net income for the first quarter 2004 was
$54 million. Quarter over quarter, we benefited from the
steady growth of our non-GM business and have continued to
diversify our customer base through sales of technology-rich
products and systems-based solutions for vehicles and other
non-automotive applications.

A key strength of our business is our ability to
consistently generate cash. Our Board of Directors and
management use cash generated by the businesses as a measure of
our performance. Strong cash flow generation is critical to
increasing Delphis value. We use the cash that we generate
in our operations for strengthening our balance sheet, including
reducing legacy liabilities such as pensions, restructuring our
operations, generating growth, and paying dividends. We believe
that looking at our ability to generate cash provides investors
with additional insight into our performance. See further
discussion of cash flows in Liquidity and Capital
Resources below.

Our 2003 employee and product line initiatives
are on schedule and on track with our original estimated costs.
Savings realized from our restructuring plans combined with
other operating performance improvements have allowed us to
continue to manage the challenges of legacy costs associated
with declining GM revenues, rising wages, pension and healthcare
costs, as well as continued price pressures. We remain focused
on reducing structural costs.

During the quarter we have also worked with our
suppliers to manage cost pressures related to the increasing
costs of steel such that our operating results were not
materially impacted by these increased costs. However, as
detailed more fully below in Outlook, we will need
to continue to work with our suppliers and customers and we
cannot assure you that we will not experience increased costs or
disruptions in supply over the remainder of the year or longer
term, or that such increased costs will not adversely impact
earnings.

Results of Operations

The following managements discussion and
analysis of financial condition and results of operations
(MD&A) should be read in conjunction with the
MD&A included in our Annual Report on Form 10-K for the
year ended December 31, 2003. The information presented
below is based on our sector realignment effective
January 1, 2004, as discussed in Note 8 of our
consolidated financial statements.

Three
Months Ended March 31, 2004 versus Three Months Ended
March 31, 2003

Net Sales.Consolidated net sales by product sector and in total for the
three months ended March 31, 2004 and 2003 were:

|                                         |                        |                    |       |       |      |   |       |       | 
|---------------------------------------- | ---------------------- | ------------------ | ----- | ----- | ---- | - | ----- | ----- | 
|                                         |                        |                   
|                                         |                        | Three Months Ended |      
|                                         |                        | March 31,          |      
|                                         |                        |                    |      
|Product Sector                           |                        | 2004               |       |       | 2003 |  
|                                         |                        |                    |       |       |      |  
|                                         |                        |                   
|                                         |                        | (in millions)      |      
|Dynamics, Propulsion, Thermal & Interior |                        | $                  | 3,700 |       |      | $ | 3,662 |      
|Electrical, Electronics & Safety         |                        |                    | 3,531 |       |      |   | 3,222 |      
|Automotive Holdings Group                |                        |                    | 726   |       |      |   | 822   |      
|Other                                    |                        |                    | (546  | )     |      |   | (524  | )    
|                                         |                        |                    |       |       |      |  
|                                         | Consolidated net sales |                    | $     | 7,411 |      |   | $     | 7,182 | 
|                                         |                        |                    |       |       |      |  

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Consolidated net sales for the first quarter of
2004 were $7.4 billion compared to $7.2 billion for
the same period of 2003. Our non-GM sales increased by
$594 million, including $214 million resulting from
favorable currency exchange rates. Excluding the effects of
favorable currency exchange rates, our non-GM sales increased
$380 million or 14%. This non-GM sales increase was due to
increased production volumes and new business from diversifying
our global customer base, partially offset by price decreases.
As a percent of our net sales for the first quarter of 2004, our
non-GM sales were 43%. Net sales to GM decreased by
$365 million, net of $65 million of favorable foreign
currency exchange rates. Excluding the effects of favorable
currency exchange rates, our GM sales decreased
$430 million or 9%. This GM sales decrease was due to
volume and price decreases and our decision to exit certain
businesses. Our net sales were also impacted by continued price
pressures that resulted in price reductions of approximately
$126 million, or 1.8% for the first quarter of 2004
compared to approximately $111 million or 1.7% for the
first quarter of 2003.

Gross Margin.Our
gross margin was 11.3% for the first quarter of 2004 compared to
gross margin of 12.1% for the first quarter of 2003. The
decrease reflects the impact of higher wages, increased
U.S. pension and healthcare expenses, and price decreases
offset by lower material costs as well as savings realized from
our restructuring plans.

Selling, General and
Administrative.Selling, general and
administrative expenses of $403 million, 5.4% of total net
sales for the first quarter of 2004, were consistent with
$389 million or 5.4% of total net sales for the first
quarter of 2003. The slight increase is due to economics and
exchange effects mostly offset by cost performance.

Depreciation and
Amortization.Depreciation and
amortization was $279 million for the first quarter of 2004
compared to $253 million for the first quarter of 2003; the
increase primarily reflects the impact of currency exchange
rates.

Employee and Product Line
Charges.In the third quarter of 2003,
Delphi approved plans to reduce our U.S. hourly workforce
by up to 5,000 employees, our U.S. salaried workforce by
approximately 500 employees, and our non-U.S. workforce by
approximately 3,000 employees. Our plans entail reductions to
our workforce through a variety of methods including regular
attrition and retirements, and voluntary and involuntary
separations, as applicable. Under certain elements of the plans,
the International Union, United Automobile, Aerospace, and
Agricultural Implement Workers of America (UAW)
hourly employees may flow back to GM. As required under
generally accepted accounting principles, we record the costs
associated with the flowback to GM as the employees accept the
offer to exit Delphi. We expect to incur total charges
related to these initiatives of approximately $807 million
(pre-tax) through December 31, 2004, of which
$90 million ($52 million in cost of sales and
$38 million in employee and product line charges) was
recorded during the first quarter of 2004 and $616 million
was recorded in 2003. We expect to incur the remaining estimated
charges of $101 million (pre-tax) related to the hourly
employee reductions, including employee costs during periods
they are idled prior to separation, and to the other structural
cost initiatives during the remainder of 2004. During the first
quarter of 2004, approximately 2,150 U.S. hourly employees
flowed back to GM or retired while 400 U.S. salaried
employees and 1,350 non-U.S. employees retired or
separated under a variety of programs. Cumulatively through
March 31, 2004, approximately 3,750 U.S. hourly
employees, 500 U.S. salaried employees, and 2,900
non-U.S. employees have left the company pursuant to these
plans.

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Following is a summary of the activity in the
employee and product line reserve (in millions):

|                                  |                                 |                |     |      |            |   |   |       |  |   |     |      |     
|--------------------------------- | ------------------------------- | -------------- | --- | ---- | ---------- | - | - | ----- |  | - | --- | ---- | ----
|Employee and Product Line Charges |                                 | Employee Costs |     |      | Exit Costs |   |   | Total | 
|                                  |                                 |                |     |      |            |   |   |       | 
|Balance at January 1, 2004        |                                 | $              | 246 |      |            | $ | 5 |       |  | $ | 251 |     
|                                  | First quarter 2004 charges      |                |     | 38   |            |   |   |      |  |   |     | 38   |     
|                                  | Usage in the first quarter 2004 |                |     | (145 | )          |   |   |      |  |   |     | (145 | )(a)
|                                  |                                 |                |     |      |            |   |   |       | 
|Balance at March 31, 2004         |                                 | $              | 139 |      |            | $ | 5 |       |  | $ | 144 | (b) 
|                                  |                                 |                |     |      |            |   |   |       | 



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                     | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (a) | The total cash paid in the first quarter of 2004
    was $141 million, as shown on our consolidated Statement of
    Cash Flows. The $145 million of usage in the first quarter
    includes $4 million of non-cash special termination pension
    and postretirement benefits. In addition, we incurred
    $52 million of cash costs associated with the 2004 charges,
    which were recorded in cost of sales. | 
|
| | (b) | This amount is included in accrued liabilities in
    the accompanying consolidated balance sheet.                                                                                                                                                                                                                                                                                                                  | 

The estimated cash impact of the 2003 initiatives
is approximately $0.7 billion, of which $193 million
was paid in the first quarter of 2004 and $205 million was
paid in 2003. We expect that up to $0.2 billion will be
paid in subsequent quarters in 2004 and the remainder in 2005.

Operating Income.Operating income was $121 million for the first quarter of
2004 compared to $228 million for the first quarter of
2003. The first quarter 2004 operating income includes charges
of $52 million in cost of sales and $38 million in
employee and product line charges (the 2004
Charges). Management reviews our sector operating income
results excluding the 2004 Charges. Accordingly, we have
separately presented such amounts in the table below:

|                                         |                        |                    |      |     |      |   |      |     | 
|---------------------------------------- | ---------------------- | ------------------ | ---- | --- | ---- | - | ---- | --- | 
|                                         |                        |                   
|                                         |                        | Three Months Ended |     
|                                         |                        | March 31,          |     
|                                         |                        |                    |     
|Product Sector                           |                        | 2004               |      |     | 2003 |  
|                                         |                        |                    |      |     |      |  
|                                         |                        |                   
|                                         |                        | (in millions)      |     
|Dynamics, Propulsion, Thermal & Interior |                        | $                  | 72   |     |      | $ | 134  |    
|Electrical, Electronics & Safety         |                        |                    | 282  |     |      |   | 246  |    
|Automotive Holdings Group                |                        |                    | (127 | )   |      |   | (138 | )  
|Other                                    |                        |                    | (16  | )   |      |   | (14  | )  
|                                         |                        |                    |      |     |      |  
|                                         | Subtotal               |                    |      | 211 |      |   |      | 228 | 
|2004 Charges(a)                          |                        |                    | (90  | )   |      |   |     |    
|                                         |                        |                    |      |     |      |  
|                                         | Total operating income |                    | $    | 121 |      |   | $    | 228 | 
|                                         |                        |                    |      |     |      |  



| |     |                                                                                                                                                                                                                                | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
| | (a) | Represents the 2004 Charges of $44 million
    for Dynamics, Propulsion, Thermal & Interior,
    $20 million for Electrical, Electronics & Safety,
    $22 million for Automotive Holdings Group and
    $4 million for Other. | 

The decrease in operating income from the first
quarter of 2003 primarily reflected lower pricing and increased
pension, healthcare and wages, partially offset by savings
realized from our restructuring plans and material savings.

Taxes.Our effective
tax rate for the first quarter of 2004 was 23% compared to 31%
for the first quarter of 2003. During the past year we have been
experiencing a shift in our earnings to lower tax rate
jurisdictions. In addition, we effected entity structuring and
tax planning activities, which is allowing increasing amounts of
earnings from the Asia-Pacific region to be considered
indefinitely reinvested in foreign operations. Finally, our
effective tax rate benefited from lower statutory tax rates in
certain foreign jurisdictions and U.S. tax law changes. We
currently anticipate, as a result of the foregoing, that our
full year 2004 effective tax rate will be between 20% and 23%.

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2003 and 2002 Segment Reporting

Effective January 1, 2004, we realigned our
business sectors by combining the interior product lines into
the Dynamics, Propulsion, Thermal & Interior Sector,
which were previously included in the Electrical, Electronics,
Safety & Interior Sector. Our segment data shown above
is based on our realigned sectors; for comparative purposes, the
financial data for all the quarterly periods in 2003, the year
ended December 31, 2003 and the year ended
December 31, 2002 is shown below. Management reviews our
sector operating results for 2003 and 2002 for purposes of
making operating decisions and assessing performance excluding
certain charges. These include the charges in the third quarter
of 2003 of $148 million in cost of sales, $56 million
in depreciation and amortization and $348 million in
employee and product line charges (the Third Quarter 2003
Charges), the charges in the fourth quarter 2003 of
$10 million in cost of sales, $6 million in
depreciation and amortization and $48 million in employee
and product line charges (the Fourth Quarter 2003
Charges), and the charges in the first quarter of 2002 of
$37 million in cost of sales and $225 million in
employee and product line charges (the 2002
Charges). Accordingly, we have presented our sector
results excluding such charges.

|     |                                                   |                 |                 |       |               |       |   |            |       |       |          |      |      |       |   |      |      |      |   |       |       |       | 
|---- | ------------------------------------------------- | --------------- | --------------- | ----- | ------------- | ----- | - | ---------- | ----- | ----- | -------- | ---- | ---- | ----- | - | ---- | ---- | ---- | - | ----- | ----- | ----- | 
|     |                                                   | Dynamics,       |                 |       |               |       |   |            |       |       |         
|     |                                                   | Propulsion,     |                 |       | Electrical,   |       |   | Automotive |       |       |          |      |     
|     |                                                   | Thermal &       |                 |       | Electronics & |       |   | Holdings   |       |       |          |      |     
|     |                                                   | Interior        |                 |       | Safety        |       |   | Group      |       |       | Other(a) |      |      | Total |  
|     |                                                   |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|     |                                                   |                
|     |                                                   | (in millions)   |                
|2003 |                                                   |                 |                 |       |               |       |   |            |       |       |          |      |      |       |   |      |      |      |   |      
|     |                                                   |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|     | For the Three Months Ended March 31,
    2003     |                 |                 |       |               |       |   |            |       |       |          |      |      |       |   |      |      |      |   |       |      
|     | Net sales to GM and affiliates                    |                 | $               | 2,325 |               |       | $ | 1,724      |       |       | $        | 506  |      |       | $ |     |      |      | $ | 4,555 |      
|     | Net sales to other customers                      |                 |                 | 1,139 |               |       |   | 1,388      |       |       |          | 100  |      |       |   |     |      |      |   | 2,627 |      
|     | Inter-sector net sales                            |                 |                 | 198   |               |       |   | 110        |       |       |          | 216  |      |       |   | (524 | )    |      |   |      |      
|     |                                                   |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|     |                                                   |                 | Total net sales |       | $             | 3,662 |   |            | $     | 3,222 |          |      | $    | 822   |   |      | $    | (524 | ) |       | $     | 7,182 | 
|     |                                                   |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|     | Sector operating income (loss)                    |                 | $               | 134   |               |       | $ | 246        |       |       | $        | (138 | )    |       | $ | (14  | )    |      | $ | 228   |      
|    
|     | For the Three Months Ended June 30,
    2003      |                 |                 |       |               |       |   |            |       |       |          |      |      |       |   |      |      |      |   |       |      
|     | Net sales to GM and affiliates                    |                 | $               | 2,191 |               |       | $ | 1,664      |       |       | $        | 458  |      |       | $ |     |      |      | $ | 4,313 |      
|     | Net sales to other customers                      |                 |                 | 1,196 |               |       |   | 1,484      |       |       |          | 101  |      |       |   |     |      |      |   | 2,781 |      
|     | Inter-sector net sales                            |                 |                 | 217   |               |       |   | 108        |       |       |          | 206  |      |       |   | (531 | )    |      |   |      |      
|     |                                                   |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|     |                                                   |                 | Total net sales |       | $             | 3,604 |   |            | $     | 3,256 |          |      | $    | 765   |   |      | $    | (531 | ) |       | $     | 7,094 | 
|     |                                                   |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|     | Sector operating income (loss)                    |                 | $               | 134   |               |       | $ | 256        |       |       | $        | (158 | )    |       | $ | (60  | )(b) |      | $ | 172   | (b)  
|    
|     | For the Three Months Ended September 30,
    2003 |                 |                 |       |               |       |   |            |       |       |          |      |      |       |   |      |      |      |   |       |      
|     | Net sales to GM and affiliates                    |                 | $               | 1,989 |               |       | $ | 1,522      |       |       | $        | 416  |      |       | $ |     |      |      | $ | 3,927 |      
|     | Net sales to other customers                      |                 |                 | 1,114 |               |       |   | 1,436      |       |       |          | 86   |      |       |   |     |      |      |   | 2,636 |      
|     | Inter-sector net sales                            |                 |                 | 189   |               |       |   | 96         |       |       |          | 182  |      |       |   | (467 | )    |      |   |      |      
|     |                                                   |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|     |                                                   |                 | Total net sales |       | $             | 3,292 |   |            | $     | 3,054 |          |      | $    | 684   |   |      | $    | (467 | ) |       | $     | 6,563 | 
|     |                                                   |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|     | Sector operating income (loss)                    |                 | $               | 16    | (c)           |       | $ | 172        | (c)   |       | $        | (160 | )(c) |       | $ | (4   | )(c) |      | $ | 24    | (c)  
|    
|     | For the Three Months Ended December 31,
    2003  |                 |                 |       |               |       |   |            |       |       |          |      |      |       |   |      |      |      |   |       |      
|     | Net sales to GM and affiliates                    |                 | $               | 2,152 |               |       | $ | 1,643      |       |       | $        | 438  |      |       | $ |     |      |      | $ | 4,233 |      
|     | Net sales to other customers                      |                 |                 | 1,255 |               |       |   | 1,670      |       |       |          | 99   |      |       |   |     |      |      |   | 3,024 |      
|     | Inter-sector net sales                            |                 |                 | 212   |               |       |   | 100        |       |       |          | 186  |      |       |   | (498 | )    |      |   |      |      
|     |                                                   |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|     |                                                   | Total net sales |                 | $     | 3,619         |       |   | $          | 3,413 |       |          | $    | 723  |       |   | $    | (498 | )    |   | $     | 7,257 |      
|     |                                                   |                 |                 |       |               |       |   |            |       |       |          |      |      |       |  
|     | Sector operating income (loss)                    |                 | $               | 108   | (d)           |       | $ | 274        | (d)   |       | $        | (144 | )(d) |       | $ | (24  | )(d) |      | $ | 214   | (d)  

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|     |                                          |                 |   |        |               |  |   |            |        |  |          |       |         |       |   |        |         |   |   |        |        | 
|---- | ---------------------------------------- | --------------- | - | ------ | ------------- |  | - | ---------- | ------ |  | -------- | ----- | ------- | ----- | - | ------ | ------- | - | - | ------ | ------ | 
|     |                                          | Dynamics,       |   |        |               |  |   |            |        |  |         
|     |                                          | Propulsion,     |   |        | Electrical,   |  |   | Automotive |        |  |          |       |        
|     |                                          | Thermal &       |   |        | Electronics & |  |   | Holdings   |        |  |          |       |        
|     |                                          | Interior        |   |        | Safety        |  |   | Group      |        |  | Other(a) |       |         | Total |  
|     |                                          |                 |   |        |               |  |   |            |        |  |          |       |         |       |  
|     |                                          |                
|     |                                          | (in millions)   |  
|     | For the Year Ended
    December 31, 2003 |                 |   |        |               |  |   |            |        |  |          |       |         |       |   |        |         |   |   |        |       
|     | Net sales to GM and affiliates           |                 | $ | 8,657  |               |  | $ | 6,553      |        |  | $        | 1,818 |         |       | $ |       |         |   | $ | 17,028 |       
|     | Net sales to other customers             |                 |   | 4,704  |               |  |   | 5,978      |        |  |          | 386   |         |       |   |       |         |   |   | 11,068 |       
|     | Inter-sector net sales                   |                 |   | 816    |               |  |   | 414        |        |  |          | 790   |         |       |   | (2,020 | )       |   |   |       |       
|     |                                          |                 |   |        |               |  |   |            |        |  |          |       |         |       |  
|     |                                          | Total net sales |   | $      | 14,177        |  |   | $          | 12,945 |  |          | $     | 2,994   |       |   | $      | (2,020  | ) |   | $      | 28,096 | 
|     |                                          |                 |   |        |               |  |   |            |        |  |          |       |         |       |  
|     | Depreciation and amortization            |                 | $ | 514    | (e)           |  | $ | 420        | (e)    |  | $        | 75    | (e)     |       | $ | 39     |         |   | $ | 1,048  | (e)   
|     | Sector operating income (loss)           |                 | $ | 392    | (c)(d)        |  | $ | 948        | (c)(d) |  | $        | (600  | )(c)(d) |       | $ | (102   | )(c)(d) |   | $ | 638    | (c)(d)
|     | Sector assets                            |                 | $ | 10,436 |               |  | $ | 8,687      |        |  | $        | 2,249 |         |       | $ | (468   | )       |   | $ | 20,904 |       
|     | Capital expenditures                     |                 | $ | 536    |               |  | $ | 380        |        |  | $        | 79    |         |       | $ | 10     |         |   | $ | 1,005  |       
|    
|2002 |                                          |                 |   |        |               |  |   |            |        |  |          |       |         |       |   |        |         |   |   |       
|     |                                          |                 |   |        |               |  |   |            |        |  |          |       |         |       |  
|     | For the Year Ended
    December 31, 2002 |                 |   |        |               |  |   |            |        |  |          |       |         |       |   |        |         |   |   |        |       
|     | Net sales to GM and affiliates           |                 | $ | 8,967  |               |  | $ | 6,803      |        |  | $        | 2,092 |         |       | $ |       |         |   | $ | 17,862 |       
|     | Net sales to other customers             |                 |   | 4,271  |               |  |   | 4,871      |        |  |          | 423   |         |       |   |       |         |   |   | 9,565  |       
|     | Inter-sector net sales                   |                 |   | 867    |               |  |   | 381        |        |  |          | 1,035 |         |       |   | (2,283 | )       |   |   |       |       
|     |                                          |                 |   |        |               |  |   |            |        |  |          |       |         |       |  
|     |                                          | Total net sales |   | $      | 14,105        |  |   | $          | 12,055 |  |          | $     | 3,550   |       |   | $      | (2,283  | ) |   | $      | 27,427 | 
|     |                                          |                 |   |        |               |  |   |            |        |  |          |       |         |       |  
|     | Depreciation and amortization            |                 | $ | 469    |               |  | $ | 411        |        |  | $        | 87    |         |       | $ | 21     |         |   | $ | 988    |       
|     | Sector operating income (loss)           |                 | $ | 451    | (f)           |  | $ | 932        | (f)    |  | $        | (375  | )(f)    |       | $ | (58    | )(f)    |   | $ | 950    | (f)   
|     | Sector assets                            |                 | $ | 9,325  |               |  | $ | 7,466      |        |  | $        | 2,518 |         |       | $ | 129    |         |   | $ | 19,438 |       
|     | Capital expenditures                     |                 | $ | 505    |               |  | $ | 414        |        |  | $        | 109   |         |       | $ | 7      |         |   | $ | 1,035  |       



|    |  |                                                                                                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Other includes activity not allocated to the
    product sectors and elimination of inter-sector transactions.                                                                                                                                
|   
|(b) |  | Includes the second quarter 2003 legal settlement
    with a former supplier of $38 million.                                                                                                                                                  
|   
|(c) |  | Excludes the Third Quarter 2003 Charges of
    $106 million for Dynamics, Propulsion, Thermal &
    Interior, $124 million for Electrical,
    Electronics & Safety, $296 million for Automotive
    Holdings Group and $26 million for Other.
|   
|(d) |  | Excludes the Fourth Quarter 2003 Charges of
    $11 million for Dynamics, Propulsion, Thermal &
    Interior, $10 million for Electrical,
    Electronics & Safety, $27 million for Automotive
    Holdings Group and $16 million for Other.  
|   
|(e) |  | Excludes asset impairment charges recorded 2003
    of $62 million with $5 million for Dynamics,
    Propulsion, Thermal & Interior, $6 million for
    Electrical, Electronics & Safety, and $51 million
    for Automotive Holdings Group.  
|   
|(f) |  | Excludes the 2002 Charges of $97 million for
    Dynamics, Propulsion, Thermal & Interior,
    $45 million for Electrical, Electronics & Safety,
    $104 million for Automotive Holdings Group and
    $16 million for Other.                

Liquidity and Capital Resources

Overview
of Capital Structure

Our objective is to appropriately finance our
business through a mix of long-term and short-term debt, and to
ensure that we have adequate access to liquidity. Of our
$3.4 billion of outstanding debt at March 31, 2004,
$2.0 billion was senior, unsecured debt with maturities
ranging from 2006 to 2029. This long-term debt primarily
finances our long-term fixed assets. As of March 31, 2004,
we have approximately $1.0 billion of short-term debt. We
have highly varying needs for short-term working capital
financing as a result of the nature of our business. Our cash
flows during the year are impacted by the volume and timing of
vehicle production, which includes a halt in certain operations
of our North

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American customers for approximately two weeks in
July and one week in December and reduced production in July and
August for certain European customers. We finance our working
capital through a mix of committed facilities, including
receivables securitization programs, uncommitted facilities
including bank lines, factoring lines and to a limited extent,
commercial paper. Although the latter group is not committed, we
expect these facilities typically would be available to us, if
and when needed. We also maintain $3.0 billion of committed
credit facilities, which we have had in place since our
separation from GM. We have never used any of the
$3.0 billion of committed credit facilities. We view these
facilities as providing an ample source of back-up liquidity
that is available in case of an unanticipated event.


Our capital planning process is focused on
ensuring that we use our cash flow generated from our operations
in ways that enhance the value of our company. In the first
quarter of 2004, we used our cash for a mix of activities
focused on revenue growth, cost reduction, and to pay dividends.
As part of our capital planning, we have taken into account that
we currently have ERISA pension funding minimums of
$0.3 billion in 2004. Our expected ERISA minimum
contribution reflects the impact of the recently passed
legislation related to the funding discount rate for pensions.
In addition, we anticipate $0.4 billion of product line and
employee cost payments from our restructuring programs announced
in October 2003, and $0.2 billion of dividends in 2004. We
expect that we will be able to fund these amounts with cash flow
from operations. We further expect that we will be able to fund
our longer-term requirements, including repayments of debt
securities and payments for residual value guarantees and
purchase options on operating leases, if exercised, as they
become due.

Available
Credit Facilities

Delphi has two financing arrangements with a
syndicate of lenders providing for an aggregate of
$3.0 billion in available revolving credit facilities (the
Credit Facilities), subject to certain limitations.
The terms of the Credit Facilities provide for a five-year
revolving credit line in the amount of $1.5 billion, which
expires June 2005, and a 364-day revolving credit line in the
amount of $1.5 billion, which expires in June 2004. We
expect to renew these credit facilities during the second
quarter of 2004. We have never borrowed under either of these
Credit Facilities. Our Credit Facilities also contain certain
affirmative and negative covenants including a financial
covenant requirement for a debt to EBITDA coverage ratio not to
exceed 3.25 to 1. In addition, certain of our lease facilities
discussed below contain cross-default provisions to our Credit
Facilities. We were in compliance with the financial covenant
and all other covenants as of March 31, 2004.

Other
Financing Transactions

We maintain a revolving accounts receivable
securitization program in the United States
(U.S. Facility Program). This program has been
accounted for as the sale of accounts receivable. As of
March 31, 2004, we had approximately $325 million of
accounts receivable sold under this program. The
U.S. Facility Program was renewed on March 29, 2004
and extended through March 28, 2005. The terms and
conditions are substantially the same; however, the
U.S. Facility Program has been increased from
$500 million to $600 million. We currently anticipate
that we will renew this program annually, with the potential for
further increases to the program as our non-GM receivables
continue to grow. The U.S. Facility Program contains a
financial covenant and certain other covenants similar to our
revolving credit facilities that, if not met, could result in a
termination of the agreement. At March 31, 2004, we were in
compliance with the financial covenant and all other covenants.
From time to time, certain subsidiaries may also sell
receivables in the normal course of their operations. Such sales
are generally consistent year to year and do not significantly
impact our liquidity.

In November 2003, we entered into
a 300 million
($366 million at March 31, 2004 currency exchange
rates) and £30 million ($55 million at
March 31, 2004 currency exchange rates) trade receivable
securitization program for certain of our European accounts
receivable. Accounts receivable transferred under this program
are accounted for as short-term debt. As of March 31, 2004,
we had no significant accounts receivable transferred under this
program. The program expires on November 4, 2004 and can be
extended, based upon the mutual agreement of the parties.
Additionally, the European program contains a

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financial covenant and certain other covenants
similar to our revolving Credit Facilities (discussed above)
that, if not met, could result in a termination of the
agreement. At March 31, 2004, we were in compliance with
all such covenants.


We lease certain property, primarily land and
buildings that are used in our operations, under leases commonly
known as synthetic leases. These leases, which are accounted for
as operating leases, provide us tax treatment equivalent to
ownership, and also give us the option to purchase these
properties at any time during the term or to cause the
properties to be remarketed upon lease expiration. In June 2003,
we entered into new five-year leases with a bank for our
corporate headquarters and two manufacturing sites. In
aggregate, our purchase price under such leases, if we choose to
exercise such option, approximates $100 million. The leases
also provide that, if we do not exercise our purchase option
upon expiration of the term and instead elect our remarketing
option, we will pay any difference between the $100 million
purchase option amount and the proceeds of remarketing, up to a
maximum of approximately $67 million. At March 31,
2004, the aggregate fair value of these properties exceeds the
minimum value guaranteed upon exercise of the remarketing
option. Upon entering into the agreement, we recorded our
estimate of the fair value of the residual value guarantee of
$3 million as a long-term liability. Under the leases we
also provide certain indemnities to the lessor, including
environmental indemnities. Due to the nature of such potential
obligations, it is not possible to estimate the maximum amount
of such exposure or the fair value. However, we do not expect
such amounts, if any, to be material. In addition, the leases
contain certain covenants and cross-default provisions to our
Credit Facility, which would require us to pay the full
$100 million if we default on our obligations under the
leases. We have an additional synthetic lease, for an operation
in Ohio, which is accounted for as an operating lease under
generally accepted accounting principles. Our purchase price
option on this facility is $28 million and we have a
guaranteed residual value of $22 million.

Customer
Financing Programs

We maintain a program with the General Electric
Capital Corporation (GECC) that allows our suppliers
to factor their receivables from us to GECC for early payment.
This program also allows us to have GECC pay our suppliers on
our behalf, providing extended payment terms to us.
Historically, we classified amounts factored by our suppliers,
but not beyond our standard supplier payment terms, as accounts
payable on our balance sheet. We classified amounts beyond our
standard payment terms as short-term debt. In late 2003, we
determined that all of the payables, including payables due
under the normal payment terms associated with this program,
should be classified as debt. As a result, our March 31,
2004 short-term debt balance includes $203 million of
accounts payable that were factored by our suppliers to GECC but
which are still within our stated payment terms to our supplier.
There were no payables beyond their stated terms at
March 31, 2004.

Some of our customers have similar arrangements
with GECC, which allows us to sell certain of our customer
receivables, at a discount, to GECC on a non-recourse basis.
When we participate in one of these programs, our receivables
are reduced and our cash balances are increased. We did not
participate in this program at March 31, 2004.

Credit
Ratings

Delphi is rated by Standard &
Poors, Moodys and Fitch Ratings. We currently have
long-term credit ratings of BBB-/Baa2/BBB, respectively, and
short-term credit ratings of A3/P2/F2, respectively. Our goal is
to maintain solid investment grade credit ratings. Although not
currently anticipated, if we were downgraded by Moodys to
Baa3, our facility fee and borrowing costs under our existing
five-year Credit Facility would increase, although availability
would be unaffected. However, we currently have no amounts
outstanding under such facilities and do not expect that we will
need to draw on these facilities even in the event of such a
downgrade. In the event of a further downgrade to BB+/Baa3/BBB-,
we believe we would continue to have access to sufficient
liquidity; however, our cost of borrowing would further increase
and our ability to tap certain financial markets may be limited.

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Cash
Flows

Operating
Activities.Net cash provided by
operating activities totaled $14 million and
$4 million for the three months ended March 31, 2004
and 2003, respectively. Net cash provided by operating
activities in the first quarter of 2004 was impacted by cash
paid for employee and product line initiatives totaling
approximately $193 million. Cash provided by operating
activities in the first quarter of 2003 was impacted by a
$350 million voluntary contribution to our
U.S. pension plans.

Investing
Activities.Cash flows used in
investing activities totaled $230 million and
$194 million for the three months ended March 31, 2004
and 2003, respectively. The use of cash in the first quarters of
2004 and 2003 reflected capital expenditures related to ongoing
operations.

Financing
Activities.Net cash provided by
financing activities was $146 million for the three months
ended March 31, 2004, compared to net cash used in
financing activities of $74 million for the three months
ended March 31, 2003. During the first quarter of 2004, our
commercial paper borrowings increased because we reduced our
sales of receivables. Cash used in financing activities during
the first quarter of 2003 reflected repayments of short-term
borrowings. Both periods also reflect the payments of dividends.

Dividends.The Board
of Directors declared a dividend on Delphi common stock of
$0.07 per share on March 1, 2004, which was paid on
April 12, 2004 to holders of record on March 15, 2004.
The dividend declared on December 3, 2003 was paid on
January 14, 2004.

Outlook

Consistent with the automotive supply industry
generally, we continue to experience significant competitive
pressure and expect to face continued downward pricing pressures
from vehicle manufacturers. We seek to meet our customer price
expectations through the continued transformation of our
manufacturing footprint and application of lean manufacturing
principles. As discussed in more detail below, our GM sales have
declined since our separation from GM. However, our non-GM
revenue is expected to continue to grow, up 23% in the first
three months of 2004 over the comparable period of 2003 and
representing 43% of our sales for the first three months of 2004.

We expect our second quarter 2004 sales to be in
the range of $7.5 billion to $7.8 billion,
$0.4 billon to $0.7 billion higher than our second
quarter 2003 sales of $7.1 billion. The 2004 sales reflect
favorable currency effects of approximately $150 million to
$200 million; excluding such favorable effects expected
revenue would be $7.4 billion to $7.6 billion. We
expect second quarter net income will be in the range of
$105 million to $145 million. Excluding expected
employee and product line charges of $20 million to
$40 million (after-tax) under the programs announced in
October 2003, we expect the second quarter net income will be in
the range of $145 million to $165 million.

Delphis total sales for 2004 are estimated
to be $28.6 billion to $29.1 billion. Total annual
sales, based on organic growth plans, are expected to rise to
$29.6 billion in 2006 and sales to customers other than GM
are expected to grow 14% on a compound basis from 2003 to 2006.
In 2006, sales to customers other than GM are expected to be
$16.6 billion, or 56% of total sales. Forecasts are based
on our revenue backlog through 2006, which is subject to
exchange rate and production volume variations.

Delphi continues to implement productivity
improvements and streamline activities designed to reduce
overhead and improve manufacturing processes. In addition, we
continue to streamline our portfolio, reduce excess capacity and
operating costs, and respond to global industry conditions and
increased employee related costs such as U.S. health care
and pensions, as well as wages in non-U.S. locations. We
are achieving and anticipate continued significant flowback of
UAW represented Delphi employees to GM. We are currently
negotiating a lower tier new-hire wage and benefit agreement
with the UAW. We are also engaged in dialogue with the UAW
regarding our plans for consolidation of three AHG sites:
Olathe, Kansas; Tuscaloosa, Alabama; and Flint West, Michigan.

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Delphi has managed cost pressures related to the
increasing costs of steel by leveraging its contractual rights
and negotiating commercial accommodations such that operating
results were not materially impacted. Although, we will continue
to take actions as necessary to manage these risks, we cannot
assure you that if cost pressures continue or worsen we will not
experience increased costs or disruptions in supply over the
remainder of the year or longer term, or that such increased
costs will not adversely impact earnings.

In addition to conditions in our market and the
economy as a whole, we depend on GM as a customer. GM accounted
for 57% of our net sales in the first quarter of 2004. Our sales
to GM have declined since our separation from GM; principally
due to lower GM production, the impact of customer driven price
reductions and the elimination of non-profitable businesses, as
well as GMs diversification of its supply base and ongoing
changes in our vehicle content and the product mix supplied to
them. We continue to exit some businesses as part of our
portfolio review process. Reflecting these and other factors, we
expect our sales to GM to decline over time. If we are unable to
compete effectively for new business with GMs other
suppliers, our revenues may decline further. In the fourth
quarter of 2003, Delphi and GM reached an agreement on a growth
and opportunity process that provides for advanced review of
sourcing opportunities, which should stabilize business at
Delphis U.S. legacy sites. While we intend to
continue to focus on retaining and winning GMs business,
we cannot ensure that we will succeed in doing so. Additionally,
our revenues may be affected by increases or decreases in
GMs business or market share as well as cost-reduction
initiatives. Our GM North America content per vehicle for the
first quarter of 2004 was $2,672; we anticipate that our 2004
content per vehicle will be $2,571. We continue to project our
sales beyond the first quarter of 2004 to grow modestly assuming
projected production levels, with non-GM sales increasing and GM
sales decreasing.

We face an inherent business risk of exposure to
product liability and warranty claims in the event that our
products fail to perform as expected and such failure of our
products results, or is alleged to result, in bodily injury
and/or property damage. In addition, as we actively pursue
additional technological innovation in both automotive and
non-automotive industries and enhance the value of our
intellectual property portfolio, we incur ongoing costs to
enforce and defend our intellectual property and face an
inherent risk of exposure to the claims of other suppliers and
parties that we have allegedly violated their intellectual
property rights. We cannot ensure that we will not experience
any material warranty, product liability or intellectual
property claim losses in the future or that we will not incur
significant costs to defend such claims. In addition, if any of
our products are or are alleged to be defective, we may be
required to participate in a recall involving such products.
Each vehicle manufacturer has its own practices regarding
product recalls and other product liability actions relating to
its suppliers. However, as suppliers become more integrally
involved in the vehicle design process and assume more of the
vehicle assembly functions, vehicle manufacturers are
increasingly looking to their suppliers for contribution when
faced with recalls and product liability claims. A recall claim
brought against us, or a product liability claim brought against
us in excess of our available insurance, may have a material
adverse effect on our business. Vehicle manufacturers are also
increasingly requiring their outside suppliers to guarantee or
warrant their products and bear the costs of repair and
replacement of such products under new vehicle warranties.
Depending on the terms under which we supply products to a
vehicle manufacturer, a vehicle manufacturer may attempt to hold
us responsible for some or all of the repair or replacement
costs of defective products under new vehicle warranties, when
the product supplied did not perform as represented.
Accordingly, although we cannot ensure that the future costs of
warranty claims by our customers will not be material, we
believe our established reserves are adequate to cover potential
warranty settlements. Our warranty reserves are based upon our
best estimates of amounts necessary to settle future and
existing claims. We regularly evaluate the level of these
reserves, and adjust them when appropriate. However, the final
amounts determined to be due related to these matters could
differ materially from our recorded estimates.

In the normal course of business, we extend
credit on open account to our customers. From time to time, we
also invest in joint ventures with a variety of business
partners. Although Delphi is affected by the financial well
being of the automotive industry as a whole, we believe that our
risk associated with

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trade receivables and recoverability of
investments in our joint ventures is mitigated by our customer
base and ongoing control procedures to monitor the
credit-worthiness of customers and viability of joint venture
business partners. As part of our ongoing procedures, we
regularly review our joint venture investments for potential
impairments or permanent declines in value.


Legislation currently pending in the
U.S. Congress could have the effect of reducing the tax
rate applicable to certain portions of our income and,
accordingly, could cause a reduction in the value of certain
deferred tax assets. The amount of this reduction, if any,
cannot be quantified until the legislation is enacted and the
tax and accounting rules applicable thereto are clarified.

Environmental Matters

As previously disclosed, with respect to
environmental matters, Delphi received notices that it is a
potentially responsible party (PRP) in proceedings
at various sites, including the Tremont City Landfill Site
located in Tremont, Ohio. The Tremont City Landfill Site
proceeding, which is alleged to concern ground water
contamination, is in the early stages of investigation and
involves multiple other PRPs. Based on the information gathered
to date, Delphi has been identified as the largest
waste-generator PRP, however, we expect that other parties,
including landfill operator and transporter PRPs, will
ultimately have to share a significant portion of any overall
site costs. In September 2002, Delphi and other PRPs entered
into a Consent Order with the Environmental Protection Agency
(EPA) to perform a Remedial Investigation and
Feasibility Study concerning a portion of the site. The
investigation is expected to be completed during 2005, as
various EPA reviews are required through each phase of the
study. Current preliminary assessments indicate that a
reasonably possible outcome of the investigative study is
capping and future monitoring of this site, which would
substantially limit future remediation costs. Based on cost
estimates received to date, we have included an estimate of our
share of the potential costs of capping and future monitoring of
the site plus the cost to complete the investigation in our
overall reserve estimate. Because the scope of the investigation
and the extent of the required remediation are still being
determined, it is possible that the final resolution of this
matter may require that we make material future expenditures for
remediation, possibly over an extended period of time and
possibly in excess of our existing reserves. As the
investigation proceeds, we will periodically re-assess any
potential remediation costs and, as appropriate, our overall
environmental reserves.

Labor Matters

As discussed above, we are currently negotiating
a lower tier new-hire wage and benefit agreement with the UAW,
and continue our dialogue with the UAW regarding our plans to
consolidate three AHG sites. In addition, during the first
quarter of 2004, we negotiated a new local agreement with the
International Union of Electronic, Electrical, Salaried,
Machine & Furniture Workers-Communication Workers of
America, AFL-CIO (the IUE) at one of our
manufacturing sites, which resolved our previously disclosed
dispute over employment levels and other issues, and will enable
us to reduce employment at the site through incentivized
attrition and achieve additional operating cost reductions.

Forward-Looking Statements

The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements made
by us or on our behalf. Delphi and its representatives may
periodically make written or oral statements that are
forward-looking, including statements included in
this report and other filings with the Securities and Exchange
Commission and in reports to our stockholders. All statements
contained or incorporated in this report which address operating
performance, events or developments that we expect or anticipate
may occur in the future (including statements relating to future
sales, earnings expectations, savings expected as a result of
our global product line and employee initiatives, portfolio
restructuring plans, volume growth, awarded sales contracts and
earnings per share expectations or statements expressing general
optimism about future operating results) are forward-looking
statements. These statements are made on the basis of
managements current views and assumptions with respect to
future events. Important factors, risks and uncertainties which
may cause actual results to differ from those expressed in

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our forward-looking statements are set forth in
this Quarterly Report on Form 10-Q. In particular, the
achievement of projected levels of revenue, earnings, cash flow
and debt levels will depend on our ability to execute our
portfolio and other global product line and employee plans in a
manner which satisfactorily addresses any resultant antitrust or
labor issues and customer concerns, any contingent liabilities
related to divestitures or integration costs associated with
acquisitions, and other matters; the success of our efforts to
diversify our customer base and still maintain existing GM
business; the continued protection and exploitation of our
intellectual property to develop new products and enter new
markets; and our ability to capture expected benefits of our
cost reduction initiatives so as to maintain flexibility to
respond to adverse and cyclical changes in general economic
conditions and in the automotive industry in each market in
which we operate, including customer cost reduction initiatives,
potential increases in warranty costs, funding requirements and
pension contributions, healthcare costs, disruptions in the
labor, commodities or transportation markets caused by
terrorism, war or labor unrests or other factors, other changes
in the political and regulatory environments where we do
business; and other factors, risks and uncertainties discussed
in our Annual Report on Form 10-K for the year ended
December 31, 2003 and other filings with the Securities and
Exchange Commission. Delphi does not intend or assume any
obligation to update any of these forward-looking statements.







|        |                                                               
|------- | --------------------------------------------------------------
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK

There have been no material changes to our
exposures to market risk since December 31, 2003.






|        |                        
|------- | -----------------------
|ITEM 4. | CONTROLS AND PROCEDURES

We have designed our disclosure controls and
procedures to ensure that material information related to
Delphi, including our consolidated subsidiaries, is made known
to our Disclosure Committee, including our principal executive
officer and principal financial officer on a regular basis, in
particular during the period in which the quarterly reports are
being prepared. As required, we evaluate the effectiveness of
these disclosure controls and procedures as of the end of each
quarter. As of March 31, 2004, we believe that such
controls and procedures are operating effectively as designed.

We presented the results of our most recent
evaluation to our independent auditors, Deloitte &
Touche LLP, and the Audit Committee of the Board of Directors.
Based on such evaluation, the Companys management,
including the principal executive officer and principal
financial officer, concluded that the Companys disclosure
controls and procedures are adequate to ensure the clarity and
material completeness of the Companys disclosure in its
periodic reports required to be filed with the SEC and there are
no significant deficiencies or material weaknesses in the design
or operation of internal controls over financial reporting which
are reasonably likely to adversely affect our ability to record,
process, summarize and report financial information.

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PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

Except as discussed in
Note 9  Commitments and
Contingencies, there have been no other material
developments in legal proceedings involving Delphi or its
subsidiaries since those reported in Delphis Annual Report
on Form 10-K for the year ended December 31, 2003.

We are involved in routine litigation incidental
to the conduct of our business. We do not believe that any of
the litigation to which we are currently a party will have a
material adverse effect on our business or financial condition.




ITEM 6. EXHIBITS AND REPORTS ON FORM
8-K

(a) EXHIBITS

|        |       |  |              |                                                                                                                                                                                                                                                                           
|------- | ----- |  | ------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |             
|Number  |       |  | Exhibit Name
|        |       |  |             
|        | 3(a)  |  |              | Amended and Restated Certificate of Incorporation
    of Delphi Automotive Systems Corporation, incorporated by
    reference to Exhibit 3(a) to Delphis Quarterly Report
    on Form 10-Q for the quarter ended June 30, 2002.                                          
|       
|        | 3(b)  |  |              | Certificate of Ownership and Merger, dated
    March 13, 2002, Merging Delphi Corporation into Delphi
    Automotive Systems Corporation, incorporated by reference to
    Exhibit 3(b) to Delphis Quarterly Report on Form 10-Q
    for the quarter ended June 30, 2002.
|       
|        | 3(c)  |  |              | By-laws of Delphi Automotive Systems Corporation,
    incorporated by reference to Exhibit 3.2 to Delphis
    Registration Statement on Form S-1 (Registration
    No. 333-67333).                                                                                       
|       
|        | 31(a) |  |              | Certification Pursuant to Exchange Act
    Rules 13a-14(a)/15d-14(a), adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                              
|       
|        | 31(b) |  |              | Certification Pursuant to Exchange Act
    Rules 13a-14(a)/15d-14(a), adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                              
|       
|        | 32(a) |  |              | Certification Pursuant to 18 U.S.C.
    Section 1350, adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                              
|       
|        | 32(b) |  |              | Certification Pursuant to 18 U.S.C.
    Section 1350, adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                              

(b) REPORTS ON FORM 8-K

During the quarter for which this report is
filed, Delphi filed the following reports on Form 8-K:



| |                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | January 20, 2004, Form 8-K reporting
    under Item 12. Disclosure of Results of Operations
    and Financial Condition the filing of financial
    information containing highlighted financial data for the three
    months and year ended December 31, 2003.

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SIGNATURE

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.

|               |  |                                                                                                                       
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------
|               |  | DELPHI CORPORATION
    -----------------------------------------------------
    (Registrant)                         
|              
|              
|              
|April 16, 2004 |  | /s/ JOHN D. SHEEHAN                                                                                                   
|               |  | -----------------------------------------------------
    John D. Sheehan, Chief Accounting
    Officer and Controller

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EXHIBIT INDEX

|        |       |  |             |                                                                                                                                             
|------- | ----- |  | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |            
|Number  |       |  | Description
|        |       |  |            
|       
|        | 31(a) |  |             | Certification Pursuant to Exchange Act
    Rules 13a-14(a)/15d-14(a), adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.
|       
|        | 31(b) |  |             | Certification Pursuant to Exchange Act
    Rules 13a-14(a)/15d-14(a), adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.
|       
|        | 32(a) |  |             | Certification Pursuant to 18 U.S.C.
    Section 1350, adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                
|       
|        | 32(b) |  |             | Certification Pursuant to 18 U.S.C.
    Section 1350, adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                

27