Delphi actions could bankrupt GM
Auto parts maker asks bankruptcy court to void contracts, plans to close or sell 21 plants; is a strike coming that could force GM into bankruptcy?
By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) - Delphi announced plans Friday to throw out its union contracts and shed more than 28,000 workers as it shut down most of its U.S. operations -- moves that could spark strikes at the auto parts maker and a possible bankruptcy filing at its biggest customer, General Motors.

Delphi (Research) filed motions with the federal judge overseeing its bankruptcy proceedings to shed contracts with the United Auto Workers union (UAW) and another union that it says it can no longer afford. It also announced plans to sell or close 21 of its 29 plants.

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What will the battle at Delphi mean for GM?
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But it said it was encouraged by progress in talks with the unions, adding it's hopeful an agreement can be reached on concessions before a court hearing scheduled for early May.

The 21 plants that Delphi wants to shed employ 20,000 hourly workers, or about two-thirds of its union work force in the U.S. The company also plans to cut another 8,500 non-union workers worldwide, or about a quarter of that staff.

"While our court filings are necessary procedural steps to enable action that may become necessary at some point in the future, we are singularly focused on reaching a consensual resolution with all of our unions and GM before any court hearing is necessary," said a statement from Delphi CEO Steve Miller.

But the UAW, the company's largest union, attacked the court filing, saying it killed momentum towards a labor agreement.

"Today it appears there is no basis for continuing discussions," UAW President Ron Gettelfinger and union VP Richard Shoemaker, the top negotiator with Delphi, said in a statement.

"In the event the court rejects the UAW-Delphi contract and Delphi imposes the terms of its last proposal, it appears that it will be impossible to avoid a long strike," they said.

"The UAW has worked diligently in good faith to resolve the Delphi situation through collective bargaining instead of through a lawyer-driven court process or confrontation. Regrettably, Delphi has chosen another path."

GM said it was disappointed with Delphi's moves, adding it disagreed with Delphi management's approach. But it said it still hoped to reach a three-way agreement with the unions and Delphi.

"Motions to reject labor agreements are fairly common in reorganization proceedings and we have seen this approach play out to agreed resolutions in other cases," GM CEO Rick Wagoner said in a separate statement.

Delphi also filed with the court to void about half of its contracts to supply GM's North American plants. Wagoner didn't address that filing in his statement.

Shares of Dow component GM (down $0.07 to $20.99, Research) fell about 2 percent in morning trading.

The other major union at Delphi, the IUE-CWA, has also threatened to strike if its labor contracts are voided. But a decision by the bankruptcy judge on whether to let the auto parts maker out of its union contracts is likely months away.

Even with the union's statement Friday, some experts continued to say they expect Delphi and the unions to reach a deal without a prolonged strike. Bob Schulz, the chief auto debt analyst for rating service Standard & Poor's, said he didn't see the risk of a strike at Delphi or bankruptcy at GM as necessarily any higher Friday than before the filing.

"Resolving the issue probably required starting the clock and filing with the court. It isn't that surprising that they filed the motion," he said Friday. "There are a number of reasons why we think all three parties will reach a consensual agreement. There's a lot of time before the May hearing."

Threat to GM

But if there are prolonged strikes at Delphi, it would halt production at GM, a move that experts say would force the troubled automaker into bankruptcy court itself. GM spun off Delphi in 1999, but the parts maker is still its largest supplier and GM can't make cars for any prolonged period without it.

GM lost $10.6 billion last year and it would be in worse shape if a lack of parts led to a shutdown of GM plants. Under GM's UAW contracts, it must continue to pay its 113,000 hourly employees even if there is no work for them to do. And while GM's balance sheet appears strong, its assets would quickly dwindle without revenue from its auto sales.

GM executives have vowed to avoid bankruptcy, but they also say they don't expect any disruption in operations. As to the threat of a strike at Delphi, GM's statement Friday said the automaker "expects Delphi to honor its public commitments to avoid any disruption to GM operations."

The threat of a Delphi strike and the obligations GM has to its former workers at the parts maker led to an agreement this month for GM to offer some UAW members at Delphi $35,000 if they agreed to retire. GM is also offering its own workers up to $140,000 to retire or leave GM and agreed to rehire 5,000 UAW members at Delphi.

GM has already said Delphi's bankruptcy will cost it at least $5.5 billion before tax., But it could be on the hook for even more money if it has to contribute more to a settlement between the UAW and Delphi.

Even if there is an agreement at Delphi Schulz cautioned that GM's problems are far from solved.

"The Delphi situation is one of the negative wild cards. But GM's own operations in North America are the biggest issue," he said.

Delphi looking for deep wage cuts

Delphi's statement Friday said it is proposing its union members take a pay cut of nearly 40 percent, though that would be cushioned by a $50,000 one-time payment to compensate for concessions.

It is proposing cutting hourly pay nearly 19 percent to $22 from $27 right away, and then to $16.50 an hour in September 2007, when the current labor deal is due to expire. The $50,000 "wage buydown" payment would be made then.

As steep as the wage cut proposal is, Delphi's demand Friday is less severe than the 54 percent cut to $12.50 an hour that Delphi was originally demanding shortly after its Oct. 8 bankruptcy filing.

The plant closing or sale plans would also mean a nearly two-third cut in hourly employment, to 12,000 workers at the eight plants Delphi intends to keep in the United States, down from 32,000 union members now.

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The eight plants that Delphi intends to keep are in Brookhaven and Clinton, Miss., Grand Rapids, Mich., Kokomo, Ind., Lockport and Rochester, N.Y., and Warren and Vandalia, Ohio.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.