TRAVERSE CITY, Mich. -- Delphi Corp. is in bailout talks with General Motors and the UAW.
Delphi President Rodney O'Neal confirmed the discussions, saying that the UAW and GM are cooperating with the parts supplier to fix "a situation that urgently must be dealt with."
"We do have to have the UAW and GM in cooperation with us to fix the situation," O'Neal said in an interview at the Management Briefing Seminars, "because we need a complete solution and we can only have that with our two strategic partners being involved."
The stakes are high in the three-way talks. Delphi of Troy, Mich., wants to avoid a Chapter 11 reorganization. GM wants to rescue its No. 1 parts maker because it has some liability for Delphi's considerable legacy costs. And the union needs to protect the 24,000 workers employed at Delphi's plants.
Delphi is suffering from declining volume from GM, a spike in raw materials, pension and health-care demands, and an accounting scandal.
Steve Miller, a turnaround specialist named CEO of Delphi in June, has ruled out filing for bankruptcy protection unless cost-cutting with the UAW fails. A bailout is bound to be costly. But so is the cost of doing nothing.
Delphi sustained losses in three of its six years since being spun off from GM in 1999, including a $4.8 billion loss last year.
Delphi last year ranked No. 1 on the Automotive News list of Top 150 original equipment North American suppliers with sales of $17.60 billion.
The ultimate swing factor is the UAW. The union is prepared to offer help as long as it does not have to reopen the national labor agreement it has with GM until 2007. Says a UAW official, who asked not to be identified: "There is only so much the union can do. I don't think they're going to open that agreement back up. You never like to say never, but I don't see that happening at all. At the same time, though, there are some things you can do within the agreement."
Merrill-Lynch analyst John Casesa in a research note last month said that "it is increasingly clear to us that some kind of deal to save Delphi will be concluded sooner rather than later."
The three-way talks are aimed at finding relief outside GM and Delphi's restrictive labor agreements.
Most important, Delphi needs relief from the $27.50an hour it pays its UAW employees. Having GM take back Delphi workers at a time when many of the automaker's own workers are nearing retirement would allow Delphi to hire a new work force at $12 per hour. That would mean cheaper parts from Delphi. It would also allow the UAW to help without reopening the labor agreement it has with GM until 2007.
In the event of a bankruptcy court filing, GM might have to take back Delphi workers with flowback rights, but the automaker might also have to absorb those pension liabilities as well. Under flowback, Delphi employees would be hired by GM.
Bearing the cost of flowback employees will be more manageable for a shorter timeframe on the way to a future contract that could allow more radical downsizing.
The crisis facing Delphi comes less than three months after the UAW agreed to a restructuring at Visteon Corp., the former Ford Motor Co. parts-making unit. Visteon, too, faced a bankruptcy court filing, analysts said, until Ford agreed to take back control of 17,400 UAW workers and 24 Visteon plants and locations.
O'Neal declined to say if a Delphi bailout will resemble the Visteon rescue. "It can come in all different forms and shapes. The key is that it gets fixed. How it comes about will take dialogue and creativity will dictate that. I'm not going to speculate on how the thing's going to look," O'Neal said.
Delphi is racing against time to dump unprofitable plants and business lines with its "fix, close or sell" efforts. The Automotive Holdings Group contains 11 plants employing 12,000 workers. Since 1999, it has closed or sold 78 plants or business lines.
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