Delphi files for bankruptcy

By David Bailey

CHICAGO (Reuters) – Delphi Corp. filed for bankruptcy on
Saturday, hurt by high wage and benefit costs inherited from
former parent General Motors Corp.. It was the biggest
bankruptcy filing in U.S. automotive history.

Delphi, the largest U.S. auto parts supplier, filed for
Chapter 11 bankruptcy protection for itself and 38 U.S. units
in U.S. Bankruptcy Court in New York. Non-U.S. subsidiaries
were not included in the filing.

Delphi has struggled since GM spun it off 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 bankruptcy filing potentially allows steep cuts in
wages and benefits to go forward without the UAW’s approval,
marking a big setback for the traditionally militant trade
union.

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

Delphi, which makes almost every component found on a car,
had about 185,200 employees worldwide at the end of 2004,
including 147,900 hourly workers. Nearly 75 percent of hourly
workers were union-represented, including 25,200 by the UAW in
the United States.

Reports from UAW local units in the past few days saying
Delphi proposed to cut wages by more than half to $10 or $12
per hour were “directionally correct,” Miller said.

‘A SIGNIFICANT REDUCTION’

“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 specify how deep the cuts would go.

The parts maker’s petition listed total assets of $17.1
billion as of August 31 and debts totaling $22.17 billion.
Delphi had revenue of $28.6 billion in 2004, including $12.7
billion from GM in North America.

Delphi said it expects to make substantial cuts in its U.S.
manufacturing operations. Delphi plans to finance its
operations with $4.5 billion in debt facilities, plus other
committed and uncommitted financing lines.

Delphi has arranged for $2 billion of debtor-in-possession
financing from a group of lenders led by Citigroup Inc. and
JPMorgan Chase & Co..

A Delphi bankruptcy is among the 15 largest since 1980,
according to the BankruptcyData.com Web site, based on total
assets of about $16.6 billion at the end of 2004.

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

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

Delphi hired Miller, a turnaround specialist, as chief
executive and chairman effective in July with the aim to
restructure 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, who previously served as nonexecutive
chairman at bankrupt auto parts maker Federal-Mogul Corp. and
as chief executive of Bethlehem Steel.

Delphi is the third large U.S. parts supplier to file for
bankruptcy protection in 2005 after auto interiors producer
Collins & Aikman Corp. in May and auto body frames producer
Tower Automotive Inc. in February.

(Additional reporting by Ilaina Jonas in New York and
Poornima Gupta in Detroit)