DETROIT - General Motors will continue negotiations with Delphi Corp. and the UAW after the supplier asked a bankruptcy judge Friday, March 31, to reject Delphi's labor contracts.
GM stopped short of saying it would bail out Delphi - and avert a strike - by subsidizing Delphi's UAW wages. But industry observers say that is what GM will have do. One sign that GM will subsidize wages, they say, is GM's efforts to build its cash hoard by selling major assets.
The UAW promised to strike Delphi if Delphi voids its contracts and cuts wages. A strike would cripple GM and disrupt many other North American auto plants.
Delphi filed for Chapter 11 reorganization on Oct. 8.
GM CEO Rick Wagoner clearly is pushing an all-out effort to stockpile cash. A key reason, said Jon Rogers, auto analyst at Citigroup in New York: "Eventually GM will end up subsidizing those wages."
Robert Schulz, the primary automotive analyst at Standard & Poor's, said the subsidy "could definitely happen." But, he said, it is a complicated issue that also involves GM buyouts of Delphi workers and future prices of components from Delphi.
"They have $20 billion in cash, so it would make sense that was one of the things they're discussing," Schulz said. "It would depend on how many people and how much per person."
GM is noncommittal
A GM spokesman declined to say whether GM would consider contributing to Delphi wages. It's all part of the three-way talks involving GM, Delphi and the UAW, spokesman Jerry Dubrowski said. "You can't isolate one part of it and say are you willing to do this without looking at all the other parts."
GM has sold assets to raise cash. (See box, Page 37.) In addition to any Delphi liabilities, GM also needs cash to deal with losses from operations while continuing to invest in product.
At the end of last year, GM reported $20.5 billion in cash on hand. Analysts estimate that GM is burning $16 million in cash a day.
Cash flow is important. Cash determines a company's ability to pay bills, invest in new products and keep the business solvent. It's especially crucial in the auto industry because a sales downturn can consume cash quickly.
GM's deals include the recent sale of a 17.4 percent stake in Suzuki Motor Corp. for about $2 billion. GM retained 3 percent of Suzuki. It also sold a majority stake in GMAC Commercial Holding Corp. for $8.8 billion, $7.3 billion of which consisted of loans the unit repaid to General Motors Acceptance Corp.
Next: Isuzu, GMAC?
GM is looking to sell its entire 7.9 percent stake in Isuzu Motors Ltd. worth about $335 million. In its biggest prospective deal, GM is offering a 51 percent stake of its financing arm, GMAC. That is estimated to be worth $11 billion to $13 billion.
But in the short term, GM has to avert a catastrophic strike at Delphi, its former parts-making operations.
GM insiders say the company does have a contingency plan if Delphi workers strike. But Citigroup analyst Rogers questions how effective that plan could be, given the size of Delphi and its impact on GM. GM's North American vehicles have an average of $2,000 worth of Delphi parts.
"From Wagoner on down, GM's management remembers that there were about 17 strikes in the 1990s, and they know the damage those strikes can do," Rogers said. "That's made an impression on them."
GM's Dubrowski would not confirm a contingency plan, but he acknowledged that GM is aware of what a strike could do to its manufacturing. When asked whether Delphi consulted with GM before filing Friday's motion, Dubrowski said, "It's not our call to make. It's Delphi's call to make.
"We've been in discussions with Delphi and discussions with the union. They didn't seek our permission, and they don't have to."
In a statement to the media, Wagoner disagreed with Delphi's motion to ask the court to toss out the contracts. He said: "But we anticipated that this step might be taken. GM expects Delphi to honor its public commitments to avoid any disruption to GM operations."
Wagoner said the attrition program that GM, Delphi and the UAW agreed to two weeks ago demonstrates GM's commitment to reaching an agreement on wage cuts.
GM is offering various levels of buyouts to Delphi union workers. GM is involved because of agreements it made with the UAW when it spun off Delphi, its former parts operations.
Wagoner voiced optimism about a settlement, saying, "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."
You may e-mail Jamie LaReau at [email protected]