IE 11 is not supported. For an optimal experience visit our site on another browser.

Delphi may push GM closer to bankruptcy

Delphi Corp. seems likely to ask a bankruptcy judge on Friday to cancel its labor contracts, analysts said, pushing its largest customer, General Motors Corp., closer to Chapter 11 bankruptcy.
/ Source: The Associated Press

Delphi Corp. seems likely to ask a bankruptcy judge on Friday to cancel its labor contracts, analysts said, with heavy consequences for the auto industry including pushing its largest customer, General Motors Corp., closer to Chapter 11 bankruptcy.

Delphi, the largest auto parts supplier in the U.S., first threatened to ask a bankruptcy judge to cancel its union contracts in December but has delayed that action three times so it can continue talks with its unions and GM, its former parent. Delphi’s latest deadline to act is Friday, and spokesman Lindsey Williams said Wednesday that, so far, the company is sticking to that deadline.

“We are holding out that something might develop,” Williams said. “We are remaining hopeful that we can come up with a resolution prior to the 31st.”

But a resolution appears unlikely. GM spokesman Jerry Dubrowski said Wednesday the automaker hasn’t settled with Delphi on a wage proposal. GM’s agreement is critical, because Delphi is depending on GM to supplement its wage offer and offer one-time payments of $50,000 to Delphi workers if they accept wage cuts.

Delphi’s two largest unions — the United Auto Workers and the International Union of Electronic Workers-Communications Workers of America — also have spoken out against Delphi’s latest proposal, which calls for lowering workers’ wages from $27 an hour to $16.50 an hour in 2007.

“Your assertion that you hope to reach an agreement this week on a new agreement is ludicrous,” Henry Reichard, a negotiator for the electronic workers’ union, said Tuesday in a letter to Delphi. Reichard said Delphi is giving “nothing more than lip service to the idea of negotiations” while preparing its motion to cancel its contracts.

Goldman Sachs analyst Robert Barry said Wednesday that Delphi is more likely than not to ask a judge to void its contracts Friday.

“We feel it is hard to envision GM and the UAW reaching an agreement on the outstanding issues without the added pressure the contract cancellation process would bring,” Barry said in a note to investors.

If Delphi asks the bankruptcy court judge to void its contracts, the company wouldn’t immediately face organized strikes. Judge Robert Drain has scheduled a May 8 hearing on Delphi’s request and wouldn’t decide whether to void Delphi’s contracts until after that hearing.

But if Drain does agree to void Delphi’s contracts, the electronics workers’ union already has authorized a strike, and UAW members could authorize one as well. Meanwhile, some workers may participate in unauthorized strikes or work slowdowns, according to Gregg Shotwell, a UAW-represented machinist at a Delphi plant in Coopersville.

“We’re just going to have to take them to the mat,” Shotwell said. “There’s no reason to take concessions. It doesn’t save jobs.”

Delphi provides parts to every major automaker. In its most recent annual report, Delphi said Ford Motor Co., DaimlerChrysler AG, Nissan Motor Co. and Volkswagen AG all bought more than $850 million in parts.

But a strike would have the most devastating consequences for GM, which buys about $14 billion in parts from Delphi annually, including air bags, brakes, steering and climate control systems, satellite radio and on-board navigators.

In a note to investors Wednesday, Merrill Lynch analyst John Murphy estimated a strike would cost GM $7 billion to $8 billion in the first 60 days. GM has around $20 billion in cash on hand, so a lengthy strike could send the automaker into bankruptcy. GM already is struggling with declining U.S. market share, its own high labor costs and it lost $10.6 billion in 2005.

Barry predicted Delphi will avoid a strike even if it goes to court Friday because the company can continue to negotiate with GM and its unions until the judge makes a decision. Dubrowski said GM is willing to keep negotiating even if Delphi asks to have its contracts voided.

“GM would continue to be constructive and cooperate with the courts and with Delphi and the unions to reach a consensual agreement,” Dubrowski said.

But it’s unclear whether the UAW would keep negotiating if Delphi takes that step. In a closed-door meeting with local union officials this week, UAW Vice President Richard Shoemaker said the union would negotiate with Delphi until Friday, but if the company asks the court to reject its contracts, the union might not continue discussions, UAW spokesman Paul Krell said.