CHICAGO -- The U.S. auto parts sector faces potential supply shocks if hourly workers strike Delphi Corp., which is pursuing wage and benefit concessions from its unions, a key focus of its bankruptcy reorganization, an analyst said.
"It's a distinct possibility that a work action does take place somewhere through the course of this bankruptcy," Fitch Ratings managing director Mark Oline said.
Highlighting that possibility, Richard Shoemaker, the United Auto Workers official responsible for labor contract negotiations with Delphi, told Reuters on Thursday, Oct. 13, that a strike "certainly is one of the options that is available" to the union.
Delphi, which filed the biggest bankruptcy in U.S. automotive history Oct. 8 in New York, has said it wants to negotiate significant cost cuts with its unions and plans to submit written proposals to them next Friday.
However, Delphi also has told the U.S. Bankruptcy Court that it plans to begin the process of rejecting the agreements in mid-December if it cannot reach a deal with its unions that would significantly cut its U.S. manufacturing costs.
"We have not yet seen any supply disruptions, but it remains a key risk," Oline said. "That risk will only increase as we get closer to a date where Delphi, if unable to achieve a contract with a UAW, needs to impose a contract."
Delphi has about 50,600 employees in the United States, including 34,750 hourly workers, almost all represented by unions. Delphi had sought to negotiate wage and benefit cuts from the UAW to avoid bankruptcy, amid reports that suggested it sought cuts as deep as 63 percent.
"The extent of the wage and benefit reductions Delphi is seeking would be difficult for any union to swallow easily," Oline said, adding that Fitch is also keeping close watch on Delphi's plan for its pensions.
Smaller suppliers, which can be more vulnerable to cash flow interruptions than larger companies, may feel some pressure because of payment disruptions.
A missed customer payment could be a tipping point, but that has not happened so far with the bankruptcy cases of Collins & Aikman Corp. and Tower Automotive Inc. and appears unlikely in the Delphi case, said Neil De Koker, president of the Original Equipment Suppliers Association.
"I don't suspect there will be a rash (of bankruptcies), but there will be other Chapter 11s because the industry is still struggling," he added.
The vast majority of smaller suppliers probably have no more than a few percentage points of business with any one company and should weather the storm without having to file for bankruptcy themselves, De Koker said.
Collins & Aikman, which manufactures automotive interiors, filed for bankruptcy protection in May and Tower Automotive, an auto-body frames producer, filed for Chapter 11 in February.