Delphi strike could imperil GM reserves

Experts fear greater bankruptcy risk if UAW walks out

November 18, 2005|By DETROIT FREE PRESS

DETROIT - If Delphi Corp.'s unionized workers go on strike, General Motors Corp.'s plants start slowing down in 48 hours and one of the automaker's biggest assets, its stockpile of cash, could rapidly dwindle, industry experts say.

Industry observer David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., said GM plants, which use Delphi components on all of their vehicles, would be disrupted within two days of a strike by unions representing the nation's largest auto-parts supplier.

If a strike lasted three months or more, GM could burn through most of its $19 billion in cash, increasing the risk that the automaker would go bankrupt, said Rod Lache, who studies GM for investors at Deutsche Bank Securities Inc.

GM Chief Executive Officer Rick Wagoner sent an e-mail to employees Wednesday vehemently denying that a bankruptcy filing is on the table.

"We're going through a rough patch of road these days, and it's attracting a lot of opinions about our company and its future. ... I'd like to just set the record straight here and now: There is absolutely no plan, strategy or intention for GM to file for bankruptcy," Wagoner wrote.

A bankruptcy filing would be a major blow for the U.S. auto industry and for Michigan. GM has 142,000 employees in the United States and spends $85 billion annually on parts and services from more than 3,000 suppliers.

GM needs Delphi to successfully launch its new line of trucks at the beginning of the year, said Erich Merkle, auto analyst for IRN Inc. in Grand Rapids, Mich.

Merkle said yesterday that he was surprised by GM's newest incentive program, its red tag sale. "Why not just let the inventory build if you need them?" he said.

Delphi, which filed for bankruptcy Oct. 8, submitted a final proposal on wage and benefit cuts to workers Tuesday. It proposed paying unskilled workers $10 to $12.50 an hour from the current average of $25 to $27 an hour.

The possibility of a Delphi strike grew Wednesday after UAW President Ron Gettelfinger said in a news conference that the union would "keep our options open" in deciding whether to strike.

UAW Vice President Richard Shoemaker said Wednesday that Delphi's proposal "was not designed for an agreement. It is a road map for confrontation."

A three-month strike would use up about $13 billion of GM's cash, Deutsche Bank's Lache wrote in a report this week. GM reported $19.2 billion in cash, marketable securities and money available from a retiree health care fund at the end of September. Three months earlier, GM had $20.2 billion.

Other analysts had similar predictions.

A three-month UAW strike at Delphi could bankrupt GM, Sanford C. Bernstein analyst Brian Johnson wrote in a report Wednesday.

"The fight between Delphi and the union is scaring people about a strike shutting down GM," Burnham Securities Inc. analyst David Healy told Bloomberg News.

"It's become a high-stakes game of poker," said Merkle of IRN. "There's a lot riding on it. If the UAW decides to strike, it could shut down GM if the strike goes on long enough."

GM hasn't had any parts disruptions from Delphi, and the supplier hasn't indicated that interruptions are expected, GM spokesman Jerry Dubrowski said yesterday. He wouldn't comment on the potential cost to GM should there be a Delphi strike.

The bigger risk to GM is an unauthorized strike at a Delphi plant, J.P. Morgan analyst Himanshu Patel wrote in a report Thursday. A protracted strike is the biggest risk toward a GM bankruptcy at the moment, he said.

"Delphi is a problem, bankruptcy concerns are not," Patel wrote.

A 1998 strike at two GM parts factories in Flint, Mich., forced the closing of 26 of the automaker's 29 North American assembly plants. That strike also canceled production of 318,000 cars and trucks and cut profit by $1.3 billion.

GM's market capitalization, or the total value of its stock, stood at $12.8 billion yesterday, down from $17.3 billion at the end of September. Merkle said GM's low market value reflects investors' fears.

"I think people are seeing that the downside risk for the stock is much greater than the upside potential," Merkle said.

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