Car parts producer plans for job cuts

Industry leader Delphi cites low demand, rising costs for work force trim

October 19, 2004|By BLOOMBERG NEWS

Delphi Corp., the world's largest maker of auto parts, said yesterday that it would cut 19 percent more jobs than planned this year as it struggles with waning demand from automakers and rising costs for steel and plastic.

Delphi will trim 1,500 jobs in addition to the 8,000 announced in October 2003, Chief Executive J.T. Battenberg III said in an interview. The total cuts amount to about 5 percent of the company's total work force as of Dec. 31. Delphi will probably need to shed more jobs next year, Battenberg said.

The supplier has been cutting jobs as steel and plastic prices increase while U.S. automakers Ford Motor Co. and General Motors Corp. reduce production and inventory. Declining severance costs helped narrow Delphi's third-quarter loss to $114 million, or 20 cents a share, from $353 million, or 63 cents, in the earlier period. Revenue rose 1.3 percent to $6.65 billion.

"We have the worst of both worlds going on with production down and the costs of commodities increasing," Battenberg said. "We have to react to these inflationary commodity prices, so it's going to put a lot of pressure on the industry and, unless relief comes in terms of volume going up, there is going to be more tightening, unfortunately."

Delphi, based in Troy, Mich., also said it's one of an unspecified number of companies being questioned by U.S. securities regulators for pension-plan-accounting practices. Separately, Delphi said it hired PricewaterhouseCoopers LLP to help investigate transactions with Electronic Data Systems Inc.

The company said in a regulatory filing it received an SEC request on Oct. 13 to disclose accounting practices regarding its pension plans.

Delphi started the internal investigation after the Securities and Exchange Commission began probing $86.5 million in transactions Delphi had with Electronic Data Systems. from 2000 through 2003. Delphi said it's also evaluating other transactions with suppliers, without elaborating, and that it's complying with the SEC's request.

Battenberg, 61, has cut 17,540 jobs since the end of 2000 so Delphi can compete against suppliers that pay lower wages. The company had 190,000 employees at the end of 2003.

"I think Delphi has done a good job of restructuring and cutting headcount, but considering the challenges, there is more work to be done there," said B. Craig Hutson, senior bond analyst with New York-based Gimme Credit research firm. "I suspect they are already in discussions with their unions to cut labor."

Delphi had costs of $348 million a year ago to cover the 8,000 job cuts. Comparable costs for job cuts in this year's third quarter were $9 million. On Oct. 5 Delphi increased its third-quarter loss forecast to $113 million to $120 million from $10 million to $40 million in the quarter.

The company said in its statement it still expects fourth-quarter results to range from a net loss of $18 million to net income of $32 million, and sales were put at $7 billion to $7.2 billion. Delphi said 2004 earnings would be $48 million to $98 million on revenue of $28.6 billion to $28.8 billion.

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