Delphi asks judge to cancel union deals

updated 7:02 p.m. ET March 31, 2006

DETROIT - Auto parts supplier Delphi Corp. unveiled a broad restructuring plan on Friday that would cut 8,500 salaried jobs, shut or sell a third of its plants worldwide and asks a bankruptcy court judge to void its labor agreements in a move that sent a shudder through the auto industry.

The United Auto Workers warned “it will be impossible to avoid a long strike” if the judge agrees to void the contracts and Delphi imposes its most recent wage proposal. A strike could put General Motors Corp., Delphi’s former parent and largest customer, perilously close to bankruptcy and hurt other automakers and smaller suppliers as well.

GM and Delphi have deep ties. GM accounted for just under half of Delphi’s $26.9 billion in revenues last year, and is required to pay some of Delphi’s pension obligations if Delphi is in bankruptcy. The world’s largest automaker already is struggling with declining U.S. market share and spiraling costs and is in the midst of its own restructuring. In a recent note to investors, Merrill Lynch analyst John Murphy estimated a Delphi strike could cost GM up to $130 million per day.

GM shares rose 21 cents, or 1 percent, to close Friday at $21.27 on the New York Stock Exchange. Delphi no longer trades on the NYSE.

“We disagree with Delphi’s approach, but we anticipated that this step might be taken,” Rick Wagoner, GM’s chairman and chief executive officer, said in a statement. “GM expects Delphi to honor its public commitments to avoid any disruption to GM operations.”

GM said it will continue negotiating with Delphi and its unions on a wage agreement. But the UAW, which represents 24,000 of Delphi’s 33,000 U.S. hourly workers, said the company’s move could stall talks.

“Indeed, today it appears there is no basis for continuing discussions,” the UAW said in a statement.

“Delphi’s misuse of the bankruptcy procedure to circumvent the collective bargaining process and slash jobs and wages and drastically reduce health care, retirement and other hard-won benefits or eliminate them altogether is a travesty and a concern for every American.”

Delphi filed a separate motion asking the court to reject some unprofitable contracts with GM. The company also said it will freeze its hourly and salaried pension programs later this year and move employees into a defined-contribution plan.

“We are clearly focused on Delphi’s future,” Delphi Chairman and CEO Robert S. “Steve” Miller said in a statement. “Emergence from the Chapter 11 process in the U.S. requires that we make difficult, yet necessary, decisions.

Troy-based Delphi filed for bankruptcy in October. The company said it intends to emerge from bankruptcy during the first half of 2007. To meet that goal, it plans to exit certain product lines and sell or close one third of its noncore plants globally by 2008, including 21 of its 29 U.S. plants.

But unions could stand in its way. The International Union of Electronic Workers-Communications Workers of America, which represents 8,000 Delphi hourly workers, has already voted to strike if the contracts are thrown out, and the UAW could do the same.

“We will not be threatened or intimidated into accepting an agreement that dismantles our plants and devastates our membership,” said Henry Reichard, who represents plants in Ohio and other states for the electronics workers’ union.

Delphi’s motion to void its labor contracts was widely expected; the company had delayed similar motions three times before. The company says it was saddled with uncompetitive labor agreements when it was spun off from GM in 1999. In its court filing, it says it pays workers $78.63 per hour in wages and benefits, or more than three times more than the average auto supplier.

No wage agreement
Delphi, GM and its unions spent months negotiating but were unable to reach a wage agreement. Under its most recent proposal, which was rejected by the UAW and other unions, Delphi proposed dropping pay for current hourly workers to $22 per hour from $27 per hour through September 2007, then to $16.50 an hour.

Delphi said it plans to keep negotiating with GM and its unions even though the motion has been filed, and some analysts have said the added urgency could help the parties reach a deal.

“I think Steve Miller did what he had to do. He threw the softest hardball he could, by seeking to negotiate but starting the clock,” said Pete Hastings, an analyst with the investment company Morgan Keegan & Co. “I think he’s doing what he needs to do to make Delphi in the U.S. profitable.”

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