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Delphi files for bankruptcy

Discussion in 'General Discussion' started by Quigley_Sharps, Oct 9, 2005.

  1. Quigley_Sharps

    Quigley_Sharps The Badministrator Administrator Founding Member

    CHICAGO (Reuters) - Auto-parts maker Delphi Corp. (NYSE:DPH - news) filed for bankruptcy on Saturday, hurt by high wage and benefit costs. It was the biggest bankruptcy filing in U.S. automotive history and promises to have a broad impact across the industry.

    The largest U.S. auto parts supplier, as expected, filed for Chapter 11 protection in U.S. Bankruptcy Court in New York. Subsidiaries outside the United States were not included.

    The Troy, Michigan-based company has struggled since it was spun off from former parent General Motors Corp. (NYSE:GM - news) in 1999, posting net losses of $741 million in the first half of 2005 alone. It had sought financing from GM and sharp cuts in wages and benefits from the United Auto Workers union"" to restructure unprofitable U.S. operations.

    The Chapter 11 filing for reorganization potentially allows steep cuts in wages, benefits and jobs to go forward without the UAW's approval, marking a big setback for the trade union"". The filing is also likely to deepen financial woes at GM, which shares many of the problems that drove Delphi into Chapter 11.

    "We are going to be taking a hard look at every line of business," Delphi Chief Executive Steve Miller said.

    Delphi, which makes almost every component found on a car, has about 185,000 employees worldwide. It has about 50,600 employees in the United States, including 25,200 represented by the UAW.

    Recent UAW reports that Delphi proposed cutting wages by more than half to $10 or $12 per hour were "directionally correct," Miller said.


    "I've been saying from day one that we need to be competitive with other suppliers or we will simply go out of business," Miller said.

    He spoke of "a significant reduction" in U.S. employment but declined to be specific.

    Delphi's filing listed assets of $17.1 billion as of August 31 and debts totaling $22.17 billion. It had revenue of $28.6 billion in 2004, including $12.7 billion from GM in North America.

    The parts maker said it expects substantial cuts in its U.S. manufacturing operations. It plans to finance operations with $4.5 billion in debt facilities, plus other financing lines.

    Delphi has arranged for $2 billion of debtor-in-possession financing from a group of lenders led by Citigroup Inc. (NYSE:C - news) and JPMorgan Chase & Co. (NYSE:JPM - news).

    Delphi's bankruptcy is among the 15 largest since 1980, based on rankings on the BankruptcyData.com Web site.

    Delphi said it plans to emerge from bankruptcy in early to mid-2007, after substantially cutting U.S. manufacturing operations and modifying labor agreements to reduce wages and benefits.

    Under terms of its spinoff, GM may be liable for pension and retiree benefits for UAW workers at Delphi, though analyst forecasts of the cost to GM have varied broadly in the range of billions of dollars.


    Analyst David Healy of Burnham Securities said GM will probably continue to get parts from Delphi on time, but the bankruptcy's financial impact on the automaker "should run into several billion dollars."

    "It's not going to kill GM, but it's certainly not welcome," Healy said.

    GM said the Delphi restructuring could "create operating and financial risks for GM," but added that the filing did not necessarily make it liable for post-retirement health-care and pension benefits for Delphi employees.

    The range of exposure extends from potentially no material impact if guarantees are not triggered to $10 billion to $11 billion at the high end, with amounts closer to the midpoint more possible than either end, GM said in a statement.

    The UAW called the filing "an extremely bitter pill."

    UAW Vice President Dick Shoemaker noted that just a day before the filing, Delphi increased severance packages for 21 top executives, citing a need to make them more competitive.

    "It's another classic example where 'uncompetitive' means that those people at the highest level get more, those that aren't fortunate to be at the highest levels get less," Shoemaker said.

    Delphi hired Miller, a turnaround specialist, as chief executive and chairman in July with an aim of restructuring outside bankruptcy with the help of GM and the UAW. However, the transaction proved too complex, Miller said.

    Bankruptcy law allows a debtor to seek the rejection of labor contracts and impose wage and benefit cuts, but in most cases issues are resolved before a company asks a judge to take that step, said Miller. He previously served as nonexecutive chairman at bankrupt auto parts maker Federal-Mogul Corp. (OTC BB:FDMLQ.OB - news) and as chief executive of Bethlehem Steel.

    The filing tops out a rocky year for Delphi, which probed accounting improprieties that forced out its former chief financial officer and five other executives and led to financial restatements and probes by federal regulators.

    Delphi is the third large U.S. parts supplier to file for bankruptcy protection in 2005. Auto interiors producer Collins & Aikman Corp. (Other OTC:CKCRQ - news) filed in May and auto-body frames producer Tower Automotive Inc. (Other OTC:TWRAQ - news) filed in February.

    The hit's just keep on coming
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