Delphi stock falls 49% with filing near

Chapter 11 looms as GM, UAW seem to stand pat

October 08, 2005|By RICK POPELY | RICK POPELY,CHICAGO TRIBUNE

CHICAGO -- Delphi Corp. edged closer to bankruptcy yesterday as neither the United Auto Workers union nor General Motors Corp. appeared willing to bail out the struggling parts supplier, which is seeking drastic cuts in pay and benefits from workers.

Reports circulated on Wall Street that a bankruptcy filing could come as early as today.

Delphi would not comment, but the reports sent the company's shares down 49 percent yesterday to a new low of $1.12 in New York Stock Exchange trading.

"We're not commenting until we have something to announce," Delphi spokeswoman Claudia Baucus said.

UAW locals that represent Delphi employees informed members through written notices and Web sites that the supplier is demanding union workers accept wage cuts of $10 to $12 an hour from $27 an hour, pay more for their health care and get less time off and reduced pension benefits.

The UAW had no comment on the reports.

A person familiar with the discussions among Delphi, GM and the UAW said Delphi was asking for far more than union members would agree to, making bankruptcy likely.

"Even if the top leadership agreed to it, it would not be ratified by the membership," said the person, who asked not to be named. "If I were a betting man, I would bet on Delphi filing and give points."

Harley Shaiken, a labor expert at the University of California at Berkeley, said: "Delphi is not drawing a line in the sand. They're bulldozing a trench in the sand."

Shaiken said the "stakes are pretty high" because the UAW could face similar demands in the future from automakers such as GM that are under the threat of losing U.S. jobs to low-wage countries.

Robert S. "Steve" Miller Jr., Delphi's chief executive, has warned that the parts maker will file for bankruptcy by Oct. 17 unless it gets substantial help from GM and the UAW.

Standard & Poor's Rating Services, which cut Delphi's credit rating a notch closer to "junk" status after the market closed Thursday, said time is running out for GM and the UAW to step up.

"Although a potential deal is still possible, it now appears less likely because of the complexity of the issues involved and the very limited timeframe remaining to reach an agreement," the agency said in a news release.

Delphi, the world's largest auto parts maker, is pressing former parent GM to contribute up to $6 billion in cash and take back employees and pension obligations.

GM spun off Delphi in 1999 and still accounts for half the supplier's $28 billion annual sales, but the automaker appears willing to take its chances in bankruptcy court instead of trying to bail out Delphi.

Bankruptcy judges could force GM to pay higher prices for Delphi parts to help the supplier become profitable, tear up the UAW's contract and impose lower wages and benefits.

Delphi, based in Troy, Mich., has about 25,000 union workers who receive the same base pay of $27 an hour and benefits as UAW workers at GM. Delphi, which lost $741 million in the first half, says it can't compete under those conditions because other suppliers pay workers far less.

Delphi's smaller suppliers could face cash-flow problems if Chapter 11 proceedings restrict how Delphi spends money. If smaller suppliers are squeezed out of business, that could interrupt the flow of parts to GM.

GM's North American auto operations lost $2.5 billion in the first half, and the company has not forecast when it will make money again.

GM plans to close an unspecified number of plants and cut 25,000 UAW jobs over the next few years, moves that are likely to add tension to negotiations with the UAW for a new contract in 2007.

Rick Popely writes for the Chicago Tribune.

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