DETROIT -- Delphi Corp. filed for Chapter 11 bankruptcy on Saturday, looking to the courts to let it cut costs by rewriting the wage deal with its UAW-represented workforce, close plants and possibly put billions of dollars in pension liabilities back onto former parent General Motors.
The bankruptcy covers only Delphi and its 38 units in the United States. Non-U.S. subsidiaries were not included.
Delphi filed at the U.S. Bankruptcy Court in New York late Saturday morning, after a special board of directors meeting to approve the move. The filing came more than a week before changes in the bankruptcy laws take effect on Oct. 17. Those changes give companies less flexibility and control over restructuring efforts.
Delphi CEO Steve Miller had set Oct. 17 as a deadline in seeking wage concessions from the UAW and financial aid from GM.
But Miller said on Saturday that reaching a deal with the UAW to cut costs was "more complex than we anticipated. There was no way to get it all done before Oct. 17."
The UAW, which represents 25,200 Delphi workers, said it was "deeply disappointed" by the filing.
"Delphi's decision would be extremely disappointing under any circumstances, but it is all the more so in light of the company's announcement on Friday that it had sweetened the severance packages for Delphi's 21 most highly compensated executives because the old severance package was -- as a Delphi spokesperson put it -- 'uncompetitive,' " UAW President Ron Gettlefinger said in a statement.
GM, Delphi's biggest customer, said it did not expect the bankruptcy to have any immediate impact on its operations. GM noted in a statement that the bankruptcy might let it pay less for Delphi parts in the future.
Delphi ranked No.1 on the Automotive News list of top 150 original equipment suppliers to North America, with original equipment sales of $17.59 billion in 2004. Among the top 100 global suppliers ranked by Automotive News, Delphi ranked No. 2 with original equipment sales of $24.1 billion in 2004.
NEW CFO NAMED
Also on Saturday morning, Delphi's board named Robert Dellinger, 45, as CFO, effective immediately. Dellinger most recently was CFO for Sprint Corp. He succeeds John Sheehan, who was named Delphi's chief restructuring officer.
Sheehan had been acting CFO since March 4, 2005, following the forced resignation of Vice Chairman and CFO Alan Dawes.
Delphi has struggled since GM spun it off in 1999, posting net losses of $741 million in the first half of 2005. It had sought financing from GM and sharp cuts in wages and benefits from the UAW to restructure unprofitable U.S. operations.
The parts maker's bankruptcy petition listed total assets of $17.1 billion as of Aug. 31 and debts of $22.17 billion. Delphi had revenue of $28.6 billion in 2004, including $12.7 billion from GM in North America.
Delphi said it plans to emerge from bankruptcy in early to mid-2007 after substantially cutting its U.S. manufacturing operations, and modifying labor agreements to reduce wages and benefits. It expects to finance its operations with $4.5 billion in debt facilities, plus other committed and uncommitted financing lines.
Delphi has arranged for $2 billion of debtor-in-possession financing from a group of lenders led by Citigroup Inc. and JP Morgan Chase & Co.
Under the terms of Delphi's spinoff, GM may be liable for assuming pension and retiree benefits for UAW workers at Delphi. But analyst forecasts for the true cost to GM have varied broadly in the range of billions of dollars.
Sanford C. Bernstein & Co. LLC brokerage firm analyst Brian Johnson said meeting those guarantees could cost GM as much as $7.3 billion.
In its statement Saturday, GM said that the bankruptcy filing does not trigger its guarantees to Delphi workers.
IMPACT ON GM UNWELCOME
David Healy, analyst with Burnham Securities, said GM will probably continue to get parts from Delphi on time but the financial impact of the bankruptcy on the automaker "should run into several billion dollars."
"It's not going to kill GM, but it's certainly not welcome," Healy said.
In its statement, GM said the Delphi restructuring could "create operating and financial risks for GM," but it also said that the Delphi restructuring presents an opportunity for the automaker over time.
GM said that it now pays Delphi an annual "purchase price premium" of about $2 billion for parts bought from Delphi's North American operations. The automaker said the restructuring "provides GM with an opportunity to reduce or eliminate that purchase price premium."
'A SIGNIFICANT REDUCTION'
Delphi CEO Miller said, "We are going to be taking a hard look at every line of business."
Delphi, which makes almost every component found on a car, had about 185,200 employees worldwide at the end of 2004, including 147,900 hourly workers. Nearly 75 percent of hourly workers were union-represented, including 25,200 by the UAW in the United States.
Reports from UAW local units over the past few days saying that Delphi proposed to cut wages by more than half to $10 to $12 per hour were "directionally correct," Miller said.
He spoke of "a significant reduction" in U.S. employment but declined to specify how deep the cuts would go.
"I've been saying from day one that we need to be competitive with other suppliers or we will simply go out of business," Miller said.
In a prepared statement, Miller said Delphi "cannot afford to continue to be encumbered by high legacy issues and burdensome restrictions under current labor agreements that impair our ability to compete. We must also realign our global product portfolio and manufacturing footprint to preserve our core businesses. This will require a substantial segment of our U.S. manufacturing operations to be divested, consolidated or wound-down through the Chapter 11 process."
Delphi's hourly wage of $65 an hour including benefits is uncompetitive, and a jobs bank that pays idled workers 95 percent of their wages is costing the Michigan supplier about $400 million this year.
With the Chapter 11 filing, GM and the UAW have lost their power to control events. The bankruptcy judge can now strip union benefits and force parts price increases on Delphi customers.
Hourly workers face uncertainty on their future wage rates and health benefits and the future of their pensions.
Current retirees also face questions, because Delphi can cancel its pension plan. In that case, the plan would be run by the Pension Benefit Guaranty Corp., a federal government agency that takes over failing pension plans.
The UAW faces a massive loss of dues-paying members.
"The UAW is committed to doing everything we possibly can to protect the interests of our active and retired members and their families," union President Gettlefinger said in his statement. "Unfortunately, this is not the first time that the UAW has had to deal with a court-ordered corporate restructuring, and we will vigorously use our experience, expertise and resources to represent the interests of UAW-Delphi workers and retirees throughout this process."
The UAW rank and file, riled by contract changes, could stage work stoppages and slowdowns. That could cause supply interruptions not only to GM but to the entire industry, says Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor, Mich.
Current shares of Delphi will most certainly be worthless, since companies almost always cancel stock in a Chapter 11. That affects employees and retirees who were granted or invested in Delphi shares.
SUPPLIERS AT RISK
Delphi's 2,000 U.S. suppliers also would be hurt if the court initially freezes about $1.9 billion that Delphi owes them for parts already delivered.
Delphi made a scheduled monthly payment to its suppliers on Tuesday, Oct. 4. That was done to get suppliers as paid up as possible, Miller said on Saturday.
With perhaps 25 percent or more of the North American supply base already stressed financially, the inability to get paid what Delphi owes them could cause a cascade of bankruptcies and failures, says Craig Fitzgerald, partner in the strategy and global service group of Plante & Moran PLLC in Southfield, Mich.
Miller has been putting away cash and has pledged an orderly reorganization that won't ravage Delphi vendors.
Fitzgerald also said it was notable that GM did not get involved with trying to help Delphi avoid bankruptcy.
"GM preferred to use its limited resources elsewhere." Fitzgerald said.
GM, which is struggling itself with declining market share, has a capital expenditures budget of about $8 billion.
"GM has to spend on new products because of its aging fleet," Fitzgerald said. He noted that GM's vehicle fleet averages about 3.7 years old since launch vs. 2.4 years since launch for vehicle fleets at Toyota and Honda.
Delphi hired Miller, a turnaround specialist, as chief executive and chairman in July with the aim to restructure outside bankruptcy with the help of GM and the UAW. However, the transaction proved too complex, Miller said.
Bankruptcy law allows a debtor to seek the rejection of labor contracts and impose wage and benefit cuts, but in most cases issues are resolved before a company asks a judge to take that step, said Miller, who has previously worked on turnarounds at Waste Management Inc., Aetna Inc., Bethlehem Steel Co. and Federal-Mogul before coming to Delphi.
In the background of the bankruptcy, Delphi is still dealing with an accounting scandal that broke last year.
The FBI and the U.S. Securities and Exchange Commission are investigating several transactions that the company has admitted were inappropriate.
Last week, a lawsuit filed in U.S. District Court in New York accused former and current Delphi executives of using phony inventory sales to artificially boost income.
Delphi's bankruptcy is among the 15 largest since 1980, according to the BankruptcyData.com Web site.
Terry Kosdrosky, David Barkholz and contributed to this report.