Delphi move shocks U.S. auto industry
DETROIT — When Robert S. “Steve” Miller took over as chairman and chief executive of auto parts supplier Delphi Corp. last summer, the veteran of turnarounds at Bethlehem Steel and Chrysler Corp. said the era of hefty union wages, underperforming plants and defined-benefit pensions was coming to an end.
On Friday, Miller made good on his prediction with a restructuring plan that calls for cutting 8,500 salaried jobs and shutting or selling one-third of Delphi’s plants worldwide. The company also asked a judge to void its labor contracts and reject some unprofitable contracts with General Motors Corp., its former parent and largest customer.
Delphi said its actions could help it emerge from Chapter 11 in the first half of 2007 as a lean, focused and profitable company. But they also could provoke a strike that would rattle the auto industry and push GM perilously close to bankruptcy.
The United Auto Workers warned “it will be impossible to avoid a long strike” if the judge agrees to void Delphi’s contracts and Delphi imposes its most recent wage proposal, which would cut U.S. hourly workers’ pay by nearly 40 percent.
GM already is struggling with declining U.S. market share and spiraling costs and is in the midst of its own restructuring. In a recent note to investors, Merrill Lynch analyst John Murphy estimated a Delphi strike could cost GM up to $130 million per day.
GM shares rose 14 cents to $21.20 on the New York Stock Exchange. Delphi shares no longer trade on the NYSE.
“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.”
GM said it will continue negotiating with Delphi and its unions on an agreement to lower wages. But the UAW, which represents 24,000 of Delphi’s 33,000 U.S. hourly workers, said the company’s move could stall talks.
“Indeed, today it appears there is no basis for continuing discussions,” the UAW said in a statement.
“Delphi’s misuse of the bankruptcy procedure to circumvent the collective bargaining process and slash jobs and wages and drastically reduce health care, retirement and other hard-won benefits or eliminate them altogether is a travesty and a concern for every American.”
Delphi, GM and its unions spent months negotiating but were unable to reach a wage agreement. GM is part of the talks because it is liable for some of Delphi’s pension obligations and the outcome of the talks is critical to its future. GM accounted for just less than half of Delphi’s $26.9 billion in annual revenues last year.
Under its most recent proposal, Delphi wanted pay for current hourly workers to drop to $22 per hour from $27 per hour through September 2007, then to $16.50 an hour. Delphi counted on GM to supplement those wages; without GM’s assistance, Delphi said, pay would drop to $12.50 an hour.
After the UAW and other unions rejected that proposal, Delphi filed the motion to void its labor contracts, an action it had delayed three times before. In its court filing, it says it pays workers $78.63 per hour in wages and benefits, or over three times more than the average auto supplier.
Judge Robert Drain has scheduled a hearing on Delphi’s request for May 9-10.