Auto-Parts Supplier Files for Chapter 11
Sunday, October 9, 2005
Delphi Corp., the nation's largest auto-parts company, filed for bankruptcy protection yesterday, the latest casualty in an American auto industry that has been struggling with high labor costs and aggressive competition from foreign rivals.
Delphi, of Troy, Mich., said it was forced to seek court protection under Chapter 11 of the federal bankruptcy code after failing to win labor concessions from the United Auto Workers union and after failing to restructure contracts with its biggest customer and former parent, General Motors Corp.
Robert S. "Steve" Miller Jr., Delphi's chairman and chief executive, said the company had been looking for a "consensual, out-of-court solution" with the UAW and GM, but "we ran out of time." He said Delphi was concerned that its options would grow more limited after new restrictive bankruptcy laws take effect Oct. 17.
Delphi's filing is the largest in the American auto industry. Analysts said bankruptcy reorganization should give the company more flexibility to close, consolidate or sell factories. Delphi operates 31 plants in 13 states in the United States. Miller said the process would allow Delphi to address costly wage, health care and job protections for union workers. He said the U.S. labor burden was becoming particularly onerous as more auto-parts factories spring up in countries with cheap labor.
U.S. suppliers have always had to weather the boom-and-bust cycle of the U.S. auto industry. Along with the automakers, the companies are battling against a slide in demand for large sport-utility vehicles. Back-to-back hurricanes and gasoline prices of more than $3 per gallon have sped up a shift toward smaller, more fuel-efficient cars, categories in which Japanese and South Korean competitors generally have an advantage.
Delphi has been squeezed as GM, its biggest customer, has cut back production. GM spun off Delphi in 1999, and the parts company has struggled to make a profit since, accumulating $4.5 billion in losses since 2000.
GM, in a statement, said it might be adversely affected by disruption in the supplies of automotive systems, components and parts that Delphi makes, which could potentially force the suspension of production at GM assembly plants. GM said, however, that so far Delphi has said there would be no disruption in its ability to build and deliver parts for GM vehicles.
In its bankruptcy filing, Delphi listed $17.1 billion in assets and $22.2 billion in debt. Delphi also had $4.3 billion in unfunded pension liabilities, some of which may have to be picked up by the federal Pension Benefit Guaranty Corp.
Delphi said it lined up $4.5 billion in loans to continue to operate while in Chapter 11 bankruptcy.
Delphi has 185,000 workers worldwide. In the United States, it has 32,000 workers, including 24,000 who are represented by the United Auto Workers.
Kevin Tynan, a senior auto analyst at Argus Research Corp. in New York, said Delphi management will continue to pressure the union to accept concessions. "If you look at the total compensation package, it's close to $125,000 to $130,000 per year," he said. "If you have UAW workers making $130,000 to assemble oil filters, it's very difficult to turn a profit."
Jane Slaughter, a Detroit-based labor writer who worked on the factory line in GM and Chrysler plants in the 1970s, said rank-and-file members of the unions don't think it's fair that they should have to make concessions.
Officials at the UAW did not return phone calls yesterday seeking a comment about the Delphi bankruptcy filing. Last month, in a speech at the Detroit Economic Club, Ron Gettelfinger, the UAW president, repeated calls for a national health care system as a way to lessen the financial burden on Detroit automakers.