By Jeff Bennett 

Auto supplier Delphi Automotive PLC has agreed to sell its automotive heating and cooling business to German competitor Mahle GmbH for more than $700 million, according to people familiar with the matter, a move that caps several years of refashioning the old-line U.S. parts maker to a more narrowly-focused technology company.

Delphi also reached a separate deal to sell its Shanghai Delphi Automotive Air-Conditioning System Co. to Mahle although financial details weren't immediately clear, these people said. The deal for the China business likely will raise the total value.

The sale of Delphi's thermal systems operation, representing about $1.6 billion in annual sales, will include 13 manufacturing sites in eight countries employing about 6,700 full-time employees. Details of the sale could be announced as early as Thursday, these people said.

The divestiture is the latest in a series of moves that Gillingham, U.K.-based Delphi has taken to narrow its focus and drive research and development into higher margin products--such as fuel cells and navigation systems where it believes it can have a strategic advantage. Cash from the Mahle deal could further boost that portfolio, the people said.

Once the world's largest auto-parts suppliers, selling everything from steering wheels to brake pads, the company has slimmed down to concentrate on products management believes Delphi it can be a leader specifically in the areas of fuel economy, active safety and self-driving technologies.

After a four-year bankruptcy, Delphi return to the public market in 2011 and its shares have jumped, pushing its market value to $22.8 billion, nearly as large as electric-car maker Tesla Motors Inc. Its shares have more than tripled since the IPO. The stock was off six cents at $74.44 on Wednesday and jumped in after-hours trading to $79.90.

The deal comes just ahead of a leadership transition at Delphi. Rodney O'Neal, the auto supplier's longtime chief executive, is due to retire on March 1. His replacement, Kevin Clark, 52 years old, likely will use proceeds from the sale to further bulk up the company's now electronics-heavy product line.

A decade ago, proceeds from a similar transaction would likely have been earmarked for worker buyouts, pension payments or health-care obligations.

Delphi filed for bankruptcy in October 2005 just as America's biggest auto suppliers were struggling as auto makers were squeezing for price concessions and the economy was headed toward a financial crisis. Since then, the top-tier of parts makers have roared back. Companies like Visteon Corp., Lear Corp. and BorgWarner Inc. are posting big profits, returning billions to shareholders and expanding geographically.

Delphi is a proxy for the transformation

Since emerging from bankruptcy in 2009, it has aggressively shed the footprint it inherited when it was spun off from General Motors Co. in the late 1990s. Once dependent on selling steering wheels, brakes and other basic auto parts to GM, it now depends on the Detroit auto maker for 17% of revenue, compared with 76% when it was first spun off.

The remaining revenue is split between eight other auto makers ranging from Daimler AG to Volkswagen AG.

Earlier this month, company posted a 15% jump in fourth-quarter profit, topping analysts' estimates. For the year, income rose to $1.44 billion on sales of $17 billion. The results underscore its newfound margin strength. In 2000, it generated a profit of $1.1 billion on sales of $29 billion on 119 products.

Delphi makes most of its money from products that help make engines more fuel efficient and vehicles capable of operating more autonomously. Cameras, sensors, emissions systems and safety equipment are staples of today's product line.

Once employing 47,000 hourly and salaried workers in the U.S. in 2005, its U.S. staff now stands at 5,000 total. Its U.S. footprint has shrunk to five factories from 47 in 2005.

"We believe Delphi has potential to become one of a handful of global suppliers that can become so powerful that they can add more value to the car than the [auto maker]," said Adam Jonas, a Moran Stanley analyst.

In Vienna, Ohio, a factory spanning the length of two football fields churns out 2.1 billion electrical connectors annually for companies including GM and Tesla. Much of the work is done by unmanned robots called "froggers" scurrying among bins and rows of machines.

Six years ago, production of these parts was spread among this plant, another in Ohio and one in Mississippi. Today, the Vienna factory and two others in Mexico handle most of the work.

Delphi now concentrates on 33 different high-tech product lines ranging from diesel injection systems to active safety parts. It closed or sold its 86 other products ranging from steering wheels and bearings to batteries and brakes.

"We picked 33 out of 119 based on one rule--all divisions and all regions would carry their own weight and perform at the same high level, no excuses, no ifs or buts," Mr. O'Neal said in a recent interview. "Everything we picked was picked for a reason and each of them has to make money."

Today, fuel efficiency accounts for half of the company's sales with electronics another 30% and safety equipment 20%.

"We underwent a complete model redo: wall-to-wall, floor-to-ceiling and top-to-bottom; there was nothing that wasn't touched," Mr. O'Neal said. "Culturally, structurally, emotionally, you name it, it got banged on. All the sacred cows were turned into fantastic steaks."

"If these technologies aren't embraced like they think it will, that could be a huge problem," Morningstar Inc. auto-parts analyst Richard Hilgert said. "While auto makers have talked about adding more, adoption rates could be slower than expected and some products not adopted at all leaving the suppliers to hold the bag on research and development costs."

Mr. O'Neal and his successor, Mr. Clark, have said Delphi is flexible enough to roll with the punches.

But that flexibility has come at a price.

Its overall payroll has been trimmed to 117,000 from 211,000. It also managed to cut the hourly wage it was paying in the U.S. to between $14.50 and $18 from $27.

Delphi consolidated its North America campus in Troy, Mich. Employees there are now housed in two office buildings instead of three. The third building sits empty.

In Ohio, the company closed six plants and cut hundreds of workers. The 160 unionized workers who remain at its Plant 47 fight every day to remain competitive.

Rick Ames, 57, a manufacturing supervisor who has been a Delphi employee for 34 years, said the remaining staff "work every day to stay competitive."

For Mahle, the purchase is a strategic move to bolster its Behr GmbH & Co. KG business. Stuttgart-based Mahle took control of Behr--which makes heating and cooling systems--in May 2013 when it became the majority shareholder in the company. Behr is the fourth largest supplier in that thermal space followed by Delphi. Japanese parts maker Denso Corp. is the leader.

Delphi's thermal systems business provides cooling, heating and air conditioning systems to almost every global auto maker. The unit contributed $1.56 billion, or 9% of the company's overall sales last year.

Write to Jeff Bennett at jeff.bennett@wsj.com

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