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Delphi files for bankruptcy

Posted on: Saturday, 8 October 2005, 12:50 CDT

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)

Source: REUTERS

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