Lawyers for Delphi Corp.’s unions and stakeholders tried to convince a bankruptcy judge Wednesday that letting the faltering auto parts company jettison its labor contracts would unfairly sideline them and risk a potentially ruinous strike.
But a Delphi executive countered that the power to cancel contracts — even if it triggers a walkout in coming months — is a better than prolonging a staredown with unions that could further weaken its chances of survival.
Leaving contracts in place and pushing out a strike until late 2007 would be “far more devastating to Delphi than a strike this summer,” said the executive, Kevin Butler. “If it is not clear that we are financially viable, then we are at risk with customer behavior.”
The testimony highlighted the second day of a closely watched trial in U.S. Bankruptcy Court for the Southern District of New York that could shape the future for the parts supplier, its 33,000 hourly workers and 18,000 retirees and General Motors Corp., its former owner and biggest customer.
The trial is scheduled to continue Friday and then resume in late May. Bankruptcy Judge Robert Drain is not expected to rule for weeks.
Delphi is seeking the right to cancel its contracts with the United Auto Workers and other unions, saying that is a crucial step in its efforts to cut its costs and ensure its survival.
But the UAW, by far Delphi’s largest union, says letting the company do so would give it an overwhelming and unfair advantage, allowing it to force through deep wage cuts and rob its workers of long-promised benefits.
At the same time it is asking hourly workers to sacrifice, Delphi is preparing to award its executives and managers with bonuses, union attorneys noted in questioning.
Delphi’s Butler testified Wednesday that after the company proposed sharp wage cuts last fall, it waited in vain for the UAW and other unions to make counterproposals that could advance negotiations.
But attorneys for smaller unions sought to point out that it was Delphi that had done little to advance talks, and ignored them to focus on the UAW.
Other opponents of Delphi’s proposal on Wednesday tried to show the judge that cancelling the contracts would also harm their interests, while protecting that of GM, the world’s biggest automaker.
The assertions, including one by an attorney for investment firms that hold 20 percent of Delphi’s stock, were that Delphi might risk substantially more by cancelling its contracts now than by living under them until they expire next year.
It would cost Delphi $300 million to fund other post employment benefits for its workers through October 2007, when the contracts expire.
But Delphi’s Butler agreed with stakeholder attorney Glenn Kurtz that a Delphi document shows GM could be held responsible for $8.6 billion in such liabilities. If Delphi cancels its contracts, GM could file a claim against Delphi for that amount, Kurtz suggested.
Why then, Kurtz asked, is the company moving ahead with its request to abandon its contracts? Wouldn’t a strike now do harm that could be potentially irreparable to the company?
“Depending on duration, it could be,” Butler said.
Delphi has proposed cutting its workers’ wages from $27 an hour to $16.50 an hour. That proposal, however, would require a large contribution from GM.
But GM has not agreed to supplement Delphi workers’ wages. Without such a contribution, Delphi is only prepared to pay its workers $12.50 an hour. The UAW has rejected that offer and unions have pledged to strike if Delphi cancels the contracts.
Delphi also wants to close or sell 21 of its 29 U.S. plants, including six of its 10 plants in Ohio.
A strike could have a devastating impact on Delphi and on GM, which relies heavily on Delphi parts for its own auto production.