Delphi Asks Court to Toss Contracts

April 1, 2006





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Delphi Corp. on Friday outlined a broad plan for restructuring into a smaller, more nimble company, as it sheds much of legacy operations and labor contracts that it inherited from General Motors.

The plan was laid out by Delphi CEO Robert “Steve” Miller last week, as Delphi petitioned its federal bankruptcy judge to cancel the company’s contracts with the UAW and other unions, and called for closing or selling off 21 of 29 manufacturing sites in the U.S.

In doing so Delphi is running the risk of serious confrontation with key unions and also with GM, which for the first time questioned publicly the course and strategy plotted by Miller and Delphi’s board of directors.

The United Auto Workers ripped the company’s actions in uncompromising terms.

“Delphi’s misuse of the bankruptcy procedure to circumvent the collective bargaining process and slash jobs and wages and drastically reduce healthcare, retirement, and other hard-won benefits or eliminate them altogether is a travesty and a concern for every American,” said UAW president Ron Gettelfinger in a blistering statement denouncing the plan.

“Actions like this just bring us one step closer to confrontation,” said Henry Reichard, who represents plants in Ohio and other states for the International Union of Electronic Workers-Communications Workers of America, which covers 8000 Delphi hourly workers.


Rhetoric aside, however, the UAW also has effectively broken off communication with Delphi. In addition, in another 60 days Richard Shoemaker, the UAW vice president in charge of discussion with Delphi, is set to retire. GM’s labor experts had warned Miller that he would be better off dealing with Shoemaker than his successor.

“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,” he added pointedly.

Delphi also asked the bankruptcy judge to void what it described as unprofitable contracts. Some $5 billion of contracts with GM are no longer profitable, according to Delphi.

As part of its transformation in a smaller, leaner, more technologically focused company, Delphi is preparing to eliminate 25 percent of its 8500 salaried jobs, cut 40 percent of its senior executive positions, and overhaul compensation for salaried employees as it reorganizes its electronics business.

Particularly hard-hit by the transformation plan was Dayton, Ohio, where Delphi had maintained a half-dozen manufacturing sites. Four of the five plants could close and 6000 jobs could be eliminated in the city that was once home to “Boss” Kettering, the fabled inventor who was at the heart of General Motors component-making operation.

Rodney O’Neal, Delphi’s chief operating officer, said the new round of cuts is expected to save Delphi $450 million per year on top of the savings realized from competitive measures planned for its core businesses and the disposition of assets that are no longer deemed essential to the company.

O’Neal also said Delphi plans to restructure its employee healthcare plan. “These changes will be implemented in conjunction with footprint and portfolio changes as well as other efforts to improve efficiency and reduce Delphi’s overall cost structure,” O’Neal said.

O’Neal emphasized that the transition process will be orderly. Among the first operations to hit the auction block could be the company’s Saginaw Steering Gear Division. Buyers from as far away as India have expressed an interest in the steering gear business. Sean McAlinden, chief economist for the Center of Automotive Research, has said GM’s purchasing operation is prepared to serve as a broker for other deals.

Delphi’s objective is to maintain a strong basis in the electronics business, which is based around the company’s manufacturing center in Kokomo, Ind. The success of the strategy, even if Delphi achieves its goal of emerging from bankruptcy next year, is problematic. GM is already pursuing a new policy of purchasing more of its electronics in China and the Far East, a recent story in Automotive News noted.

GM also has first claim on Delphi’s assets and while the claim is being challenged in court, GM could decide the best way to recoup its costs from helping Delphi avoid a disastrous strike would be to sell off the electronics units piece by piece to a growing list of potential buyers.

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