Bankruptcy roils auto industry
DETROIT – Delphi Corp., the nation’s largest auto supplier, filed for bankruptcy Saturday, sending shock waves through a U.S. auto industry already weakened by high labor costs and falling market share.
Delphi’s bankruptcy, expected to result in plant closures and layoffs, is one of the largest in U.S. history. The company has 50,000 U.S. employees.
The company filed to reorganize its U.S. operations in federal bankruptcy court in New York, where a judge Saturday allowed Delphi to continue operating while more hearings were scheduled. Delphi’s non-U.S. operations were not included in the filing.
Delphi Chairman and CEO Robert S. Miller said the company hopes to emerge from Chapter 11 in early to mid-2007.
Miller said Delphi will continue to pay its employees and suppliers and will ship its products on schedule, although the company’s former parent, General Motors Corp., said the filing could cause supply problems.
Miller, a restructuring expert who was hired in July, had threatened to take the company into bankruptcy if he failed to reach a restructuring agreement with GM and its largest union, the United Auto Workers. Miller set a deadline of Oct. 17, when U.S. bankruptcy laws are scheduled to change.
He said Delphi will continue negotiating with GM and the UAW to lower its labor costs; wages for many Delphi workers are set by the company’s spinoff agreement with GM. Miller said the three parties agreed to continue discussions after a bankruptcy filing.
“We mutually concluded there was still too much of the complex work yet to be done,” Miller said. “It was not going to be efficient to work right up to the midnight deadline to the change in the law.”
UAW officials blasted Delphi’s decision to file for bankruptcy one day after sweetening the severance packages of 21 top executives to help persuade them to stay at the company.
“Once again, we see the disgusting spectacle of the people at the top taking care of themselves at the same time they are demanding extraordinary sacrifices from their hourly workers, engineers, administrative and support staff, mid-level managers and others,” union leaders said in a statement.
Delphi said it made the change after determining its severance package for top executives was not competitive.
John Butler Jr., a bankruptcy attorney for the company, said Delphi would attempt “some restructuring of its collective bargaining agreements” during the reorganization. Delphi’s contract with the UAW expires in October 2007.
Delphi also intends to try to scale back pension benefits, Butler said during Saturday’s hearing. “The current level of retirement benefits is unsustainable and will eventually sink the company,” he said.
Delphi has 31 plants in 13 states, including Michigan, Ohio, Alabama and California. The company has 185,000 employees worldwide.
Jim Gillette, supplier analyst for CSM Worldwide in Grand Rapids, said he expects a number of underperforming plants to be shuttered or sold. He also said the bankruptcy could prompt other companies to file.
“This is not going to be an isolated incident,” he said. “It’s really going to be a rough few weeks and a rough few months for the industry.”
Delphi will finance its operations with $4.5 billion in loans, including as much as $2 billion in debtor-in-possession financing from a group of lenders led by JPMorgan Chase Bank and Citigroup Global Markets Inc.
Based in the Detroit suburb of Troy, Delphi has struggled to make a profit since GM spun it off in 1999. It lost $4.8 billion in 2004 and nearly $750 million in the first half of this year.
Delphi, No. 63 on the 2005 Fortune 500 list of the country’s largest corporations, had listed $17.1 billion in assets and $22.2 billion in debt in Saturday’s bankruptcy petition.