Delphi Has Plans To Strip Down
Friday, March 31, 2006SUSIE GHARIB: Another roadblock tonight for the troubled U.S. auto industry. Auto parts supplier Delphi Corporation asked a federal bankruptcy court today to throw out its union contracts. The company also wants to slash thousands of jobs, close plants, and dump unprofitable businesses.
As Diane Eastabrook reports, Delphi's drastic plans could mean trouble for the entire auto industry.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Delphi said it has to make difficult, but necessary decisions to get the company out of bankruptcy. Today the auto parts supplier unveiled a so-called transformation plan that would void labor contracts with unions, modify contracts with General Motors (GM), exit underperforming businesses, cut 8,500 salaried jobs, and freeze pension plans. Analysts said these drastic measures are warranted because Delphi needs exit financing from Chapter 11 reorganization.
JOHN NOVAK, AUTO ANALYST, MORNINGSTAR: I think it would be a sign to the lenders that they are on the right track and they would be able to access additional financing. And then in addition there might be some immediate cost in cash savings here, if they were able to act on some of the items they outlined today.
EASTABROOK: But the plan was quickly rebuked by the United Auto Workers union whose members could see their wages cut in half or their jobs eliminated entirely if Delphi closes, relocates, or sells roughly two-thirds of its U.S. plants. In a statement UAW officials said, quote: "In the event the court rejects the UAW-Delphi contract and Delphi imposes those terms of its last proposal, it appears that it will be impossible to avoid a long strike," end quote.
Novak doubts the union would act on its threat.
NOVAK: A strike would certainly shut down Delphi, ultimately lead to the shut down of GM, which would basically collapse GM, send it into bankruptcy, and ultimately affect the entire industry.
EASTABROOK: Delphi has been working aggressively with the UAW and GM, its former parent, to cut costs. Last week the three struck a deal that offered early retirement to nearly 17,000 Delphi workers and offered others up to 5,000 jobs at GM. Today the auto company said it disagreed with Delphi's plan and expected the supplier to honor contracts with it and the UAW.
Industry watchers say Delphi's dilemma puts enormous pressure on GM.
JOHN CASESA, MANAGING PARTNER, CASESA STRATEGIC ADVISORS: GM has a fundamental choice between participating in this in many ways, whether through giving Delphi more business or paying higher prices or subsidizing the wages of these workers or their retirements, or the other choice is to simply say, let this play out on its own, and we will accept the consequences.
EASTABROOK: Hearings on Delphi's plan won't begin until early May. Experts say that could give Delphi and the UAW time to work out an agreement that would avoid a strike.
Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
