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Delphi files for bankruptcy in New York

Automotive News Report Detroit, Michigan-Delphi Corp., hurt by high wage and benefit costs inherited from former parent General Motors, put its US operations into Chapter 11 bankruptcy Saturday 8 Oct. Delphi’s filing is the largest ever in the auto industry, dwarfing Federal-Mogul Corp.’s 2001 filing. The company employs 185,000 people worldwide.Delphi, the nation’s largest auto supplier and the world’s second-largest, filed for Chapter 11 bankruptcy protection for itself and 38 US units in US Bankruptcy Court in New York. Non-US subsidiaries were not included in the filing.The decision was made at a board of directors meeting Saturday morning. The board also named Robert Dellinger, 45, as the company’s executive vice president and CFO effective immediately. He most recently was the executive vice president and CFO for Sprint Corp. He succeeds John Sheehan, who was named Delphi’s vice president and chief restructuring officer and had served as acting CFO since March 4, 2005, following the forced resignation of Vice Chairman and CFO Alan Dawes.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 UAW to restructure unprofitable US operations.The parts maker’s petition listed total assets of $17.1 billion as of Aug. 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 US 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 JP Morgan Chase & Co.Delphi’s 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 CEO Steve Miller has insisted that Delphi must undergo restructuring, and had warned that it would happen either in bankruptcy court or out.”We took this action because we are determined to achieve competitiveness for Delphi’s core US operations, and the key to accomplishing that goal is reducing these costs as soon as possible,” said Miller in a prepared statement. “We simply cannot afford to continue to be encumbered by high legacy issues and burdensome restrictions under current labor agreements that impair our ability to compete. We must also realign our global product portfolio and manufacturing footprint to preserve our core businesses. This will require a substantial segment of our U.S. manufacturing operations to be divested, consolidated or wound-down through the chapter 11 process. We believe the chapter 11 process will provide the flexibility to address our legacy issues and allow us to take advantage of the fundamental strength of our businesses.”Delphi’s hourly wage of $65 an hour including benefits is uncompetitive, and a jobs bank that pays idled workers 95 percent of their wages is costing the Michigan supplier about $400 million this year.Delphi had been seeking substantial relief from GM and UAW. With the Chapter 11 filing, those two parties have lost their power to control events. The bankruptcy judge is now empowered to strip union benefits and force parts price increases on Delphi customers.Hourly workers now face uncertainty on their future wage rates and health benefits and the future of their pensions. Current retirees also face questions, because Delphi can cancel its pension plan. In that case, the plan would be run by the Pension Benefit Guaranty Corp., a federal government agency that takes over failing pension plans.The UAW faces a massive loss of dues-paying members.Current shares of Delphi will most certainly be worthless, since companies almost always cancel stock in a Chapter 11. That affects employees and retirees who were granted or invested in Delphi shares.The UAW rank and file, riled by contract changes, could stage work stoppages and slowdowns. That could cause supply interruptions not only to GM but the entire industry, says Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor, Michigan.Delphi’s 2000 US suppliers also would be hurt if the court initially freezes about $1.9 billion that Delphi owes them for parts already delivered. With perhaps 25 percent or more of the North American supply base already stressed financially, the inability to get paid what Delphi owes them could cause a cascade of bankruptcies and failures, says Craig Fitzgerald, partner in the strategy and global service group of Plante & Moran PLLC in Southfield, Michigan.Miller has been putting away cash and has pledged an orderly reorganization that won’t ravage Delphi vendors.In the background of the Chapter 11, Delphi is still dealing with an accounting scandal that broke last year. The FBI and the US Securities and Exchange Commission are investigating several transactions that the company has admitted were inappropriate. Last week, a lawsuit filed in US District Court in New York accused former and current Delphi executives of using phony inventory sales to artificially boost income.Terry Kosdrosky, David Barkholtz and Reuters contributed to this report.”



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