DETROIT -- As General Motors bails out Delphi Corp., its former parts operations, the automaker is harvesting some bitter fruit that it has sowed.
Delphi was driven into Chapter 11 bankruptcy protection in large part because of its huge losses on the sale of components to its former parent.
In documents filed in U.S. Bankruptcy Court in New York on Friday, March 31, Delphi revealed shocking losses on thousands of GM contracts. Delphi seeks permission to void the contracts and renegotiate them at higher prices with a customer that has forced prices down aggressively.
The filing came as Delphi revealed its long-anticipated restructuring plan that would slash labor costs by voiding union contracts, close or sell all but eight U.S. factories and eliminate 25 percent of all white-collar jobs.
The documents list 21 U.S. Delphi plants that suffered big losses on GM business. Those plants saw a combined $1.47 billion in operating losses last year. In a sign of why Delphi CEO Steve Miller felt compelled to file for Chapter 11 protection, the losses at those plants are expected to swell to $2.1 billion this year.
The figures are contained in the reorganization plan.
Now GM will have to pay the piper. Last week, Miller demanded that GM agree to pay higher prices for a wide range of products. "We simply cannot continue to sell products at a loss," Miller bluntly warned in a press release.
On Friday, Delphi asked the bankruptcy court for permission to break 5,472 GM contracts and renegotiate more favorable prices. Delphi also wants to renegotiate 400 GM contracts that have lapsed. The supplier has continued to supply components specified in those lapsed contracts on an interim basis.
Moreover, Delphi demands assurances that GM will not award Delphi's contracts to rival suppliers.
GM has been Delphi's biggest customer since 1999, when the supplier was spun off from GM. Since then, Delphi has worked hard to diversify by lining up more non-GM customers.
Indeed, Delphi's worldwide sales to GM last year totaled $12.8 billion, down from $22.3 billion in 1999.
The company says it is losing money largely because it inherited an overpaid hourly work force. An average Delphi worker earns $54 per hour in wages and benefits. Rival U.S. suppliers pay workers half as much.
Delphi expects the court to hear its motion to cancel the GM contracts on May 12. The court is scheduled to hear Delphi's request to cancel union contracts on May 9 and 10.
GM's muted response
Miller's take-no-prisoners approach triggered a muted response from GM, which has been in three-way negotiations with Delphi and the UAW.
"We disagree with Delphi's approach (to canceling GM contracts), but we anticipated that this step might be taken," GM CEO Rick Wagoner said in a statement. "GM expects Delphi to honor its public commitments to avoid any disruption to GM operations."
When Delphi emerges from bankruptcy it will have to sell its parts to someone, noted GM spokesman Jerry Dubrowski. "It's in our mutual interest to reach a consensus," he said.
Delphi's 345-page petition offered an unusually detailed glimpse of the financial bind that led to bankruptcy court. Money-losing products include commodity components such as brakes, batteries, oil filters, spark plugs, generators, hoses and moldings.
For example, the petition singles out the Needmore brake plant in Dayton, Ohio, as one of Delphi's most unprofitable factories. That plant expects to lose $200 million this year - a huge loss given its annual revenue of just $307 million.
Ironically, Delphi plans to keep four of its most unprofitable plants: Lockport, N.Y.; Kokomo, Ind.; Rochester, N.Y.; and Grand Rapids, Mich.
Delphi's demand for price increases highlights its tortured relationship with its biggest customer. Fearing the consequences of Delphi's collapse, GM is offering buyouts to 13,000 hourly Delphi employees and will allow up to 5,000 Delphi workers to return to GM.
On the other hand, Delphi complains that GM has demanded deeper annual price cuts than Delphi's other customers.
What's next? As the bankruptcy court considers Delphi's reorganization, GM, Delphi and the UAW will conduct intensive negotiations to arrange a bailout. It's a three-way poker game, and Delphi has raised the stakes.
Robert Sherefkin, Jamie LaReau and Greg Migliore contributed to this report
You may e-mail Philip Nussel at [email protected]
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