Delphi seeks aid from former parent GM
US$6-billion would be used to fund early retirements and buyouts
SOUTHFIELD, MICH. • Delphi Corp., the biggest U.S. supplier of auto parts, has asked
General Motors Corp. for an aid package worth US$6-billion to help avoid a bankruptcy filing, people familiar with the negotiations said.
Delphi, of Troy, Mich., aims to use the cash from GM to reduce expenses by offering some longtime workers bonuses to retire, quit or accept lower pay, the people said. The money would also be used to pay for pensions and health care for the retirees, they said.
“ It is going to put a major dent in GM’s profitability, but GM is stuck right now,” said Sean Egan, managing director of Egan- Jones Ratings Co., an independent debtrating firm in Haverford, Penn. He cut his rating on GM debt to B+ from BB- yesterday because of the US$6-billion request. “What GM has to do is step back and see if the company is the right supplier over the long term, or if they should seek other suppliers.”
GM, the largest customer and former parent of Delphi, is considering a request for assistance, said spokesman Jerry Dubrowski, who would not confirm the amount or other details. GM’s decision will hinge in part on concessions it wrests from the United Auto Workers union, the people said. GM is asking unions to help trim US$5.6-billion in annual healthcare expenses.
“ The problem for GM’s labour negotiators is to show the board of directors how helping Delphi will pay for itself,” said analyst Sean McAlinden of the Center for Automotive Research in Ann Arbor, Mich.
GM could save US$ 1.4- billion a year on cheaper parts if Delphi buys out its 24,000 high-seniority UAW workers, who receive US$27.50 an hour, and replaces them with new workers making US$14 an hour, Mr. McAlinden said. GM could save even more if, by helping Delphi, the automaker encourages the UAW to accept lower-cost health care for its own workforce, Mr. McAlinden said.
GM had US$20.2-billion in cash, marketable securities and cash from its employee retiree health- care fund available on June 30.
The US$6-billion demand represents nearly as much as it will spend this year to develop new vehicles. GM reiterated in July that product-development expenses this year will increase to US$ 8- billion from US$ 7- billion.
Claudia Baucus, a Delphi spokeswoman, said Delphi is seeking financial assistance from GM; she declined to specify how much. Paul Krell, a spokesman for the UAW, declined to comment.
Delphi fell to US$2.64, down US10¢. They have declined 70% this year through Tuesday.
GM shares rose US7¢ to US$30.84 They have declined 23% this year through Tuesday. On Monday, GM had its debt cut to BB, or two levels below investment grade, by Fitch Ratings on concerns over rising fuel prices, falling sales of SUVs and the restructuring of Delphi.
GM averted a strike on Tuesday by reaching a three-year contract agreement with the Canadian Auto Workers union. The union, which has 17,100 members at GM, announced the accord on Tuesday night in Toronto. Union president Buzz Hargrove said more than 1,000 jobs will be cut, with many done through attrition. With the Canadian negotiations resolved, GM will be able to focus on Delphi.
GM lost US$ 1.39- billion during the first half of 2005, compared with a profit of US$2.6-billion in the year-earlier period, as the company’s North American production declined by 11%.
Delphi posted a US$ 741- million first-half net loss as GM reduced production amid slumping U.S. sales. GM’s U.S. market share eroded to 27.1% of U.S. sales in the first half of 2005 from 32.8% in 1995 and 40.7% in 1985, according to Woodcliff Lake, N. J.-based Autodata Corp.