GM to forgo price cuts on Delphi parts

Supplier extends its deadline for Auto Workers concessions


Seeking to avert a potentially crippling strike at its largest supplier, General Motors Corp. gave bankrupt Delphi Corp. a temporary price break yesterday, and Delphi extended its deadline for reaching wage concessions with its unions.

Delphi had warned it would ask a bankruptcy judge to void its labor contracts Dec. 16 unless unions agreed to substantial pay and benefits cuts. Yesterday, the Troy, Mich., company said it would delay the filing at least five weeks, to Jan. 20.

GM bought $15.4 billion in parts last year from Delphi, which filed for Chapter 11 bankruptcy protection Oct. 8. The two companies had agreed that GM would pay less this year for the same parts as part of its continuing relationship.

Delphi said yesterday that GM would temporarily forgo the price cuts, but neither would discuss the terms of the agreement.

"Directly, it has given us a bit of financial breathing room," Delphi Chief Executive Officer Robert S. "Steve" Miller said. "It also gives us time to try to come to a consensual agreement with our unions outside of bankruptcy court."

The company has proposed cutting wages for United Auto Workers members to $12.50 an hour from about $27 and total compensation to $21.50 an hour from $65.

The UAW, which represents 24,000 Delphi workers, has rejected that, increasing the chance of a strike. Walkouts at even a handful of Delphi plants could shut down GM, which counts on Delphi for key parts on virtually all its vehicles.

Miller discounted suggestions that GM's price concession will allow Delphi to increase its offer to the UAW and other unions.

"I don't see how a delay by itself creates any money. The underlying economics are just as harsh and unforgiving," he said.

Delphi maintains that the wages and benefits it pays UAW members are three times that of other U.S. suppliers.

Miller also said yesterday's announcement doesn't mean that Delphi is close to reaching an agreement with its unions. "I wouldn't read that into it," he said. "There's still a long way to go before we will have a complete agreement."

In a statement yesterday, UAW President Ron Gettelfinger called Delphi's announcement "a positive sign," but added: "If Delphi is serious about restarting discussions, taking that insulting proposal off the table would be a good place to start."

Some analysts have dismissed a strike by Delphi workers as unlikely because it would idle UAW members at GM plants and could push GM toward bankruptcy. That could drag more than 100,000 UAW workers at GM into the same boat as those at Delphi.

But Commerzbank AG analyst Philip Watkins called a strike at Delphi "the most immediate problem" GM faces and says workers may not consider the big picture.

"I don't believe the local UAW officials would see it that way," Watkins said in a telephone interview from London. "They would be more interested in their local issues and would be more likely to pursue a strike. For GM, that would be catastrophic."

Before Delphi filed for Chapter 11, analysts estimated that a bailout by GM would cost the automaker $5 billion to $6 billion, but Watkins expects that price breaks and other concessions GM might give Delphi "will cost considerably less."

Last week, GM said it would cut 30,000 union jobs and close nine assembly and parts plants over the next three years. Analysts were unimpressed, warning that the automaker still faced disruption of its parts supply from Delphi.

By helping Delphi without becoming liable for its well-being, Watkins says GM is trying to avert its own bankruptcy and potentially botch the sale of its General Motors Acceptance Corp. finance unit.

GM intends to sell a majority stake in GMAC but maintain a close relationship with the new owners to finance the cars it sells. Analysts estimate that selling a majority share of GMAC would net GM $12 billion to $15 billion, but a GM bankruptcy would lower GMAC's value.

"The last thing they want is to give the impression that this is a fire sale," Watkins said.

GM spokesman Jerry Dubrowski confirmed the agreement with Delphi to forgo price reductions next year, but wouldn't discuss GM's motives.

"Our goal all along has been to achieve an outcome that is in the best interests of General Motors," he said.

In a research note, Commerzbank said GM's financial aid "highlights the huge behind-the-scenes efforts that are going on to avoid a highly damaging Delphi strike."

GM is believed to be in discussions with Delphi about assuming some of the supplier's pension and retiree health-care liabilities.

Dubrowski, however, said GM is not in three-way talks with Delphi and the UAW to broker a deal. "We've been talking to the union, and we've been talking separately to Delphi," he said.

Rick Popely writes for the Chicago Tribune.

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