Delphi Extends Deadline for Talks on Cuts

By Sholnn Freeman

Delphi Corp., the nation’s largest auto parts maker, postponed a showdown with labor yesterday by saying it would give the unions another month to negotiate wage and benefit cuts before asking a judge to impose them.

In a statement, Delphi, which is operating under Chapter 11 bankruptcy protection, said it will not consider asking the bankruptcy court judge to throw out the labor contracts until Jan. 20, giving the company and unions time to hammer out a deal and avoid a strike. The delay means that progress is being made, said David E. Cole, chairman of the Center for Automotive Research, who has talked with both sides.

“It’s a positive sign,” he said.

In a statement, the United Auto Workers applauded the deadline extension but warned that demands for steep wage cuts represent a “road map for confrontation.” Delphi filed for bankruptcy protection in October.

Also yesterday, Delphi said General Motors Corp.—its largest customer and original parent company—has agreed to pay Delphi higher prices for some auto parts and components in 2006. A GM spokesman stressed that the agreement—designed to help pull Delphi out of bankruptcy—is temporary.

GM buys about $14 billion in parts from Delphi annually, the spokesman said, though he would not detail the total cost of GM’s new deal with Delphi. Ford Motor Co. has outlined a strategy of working more closely with major suppliers, including Delphi, and backing off the industry’s practice of constant demands for price cuts from parts companies.

With Delphi, GM has a lot at stake. Besides the threat of a debilitating strike if union workers do not accept concessions, GM may be liable for as much as $11 billion in pension costs for Delphi workers who had been GM employees before the 1999 spinoff of the GM division that became Delphi. Those historic connections have led to an “unusual landscape” of three-sided discussions among GM, Delphi and the labor unions, a Delphi spokesman said.

Delphi cited high U.S. labor costs and pressure from cheaper international competition when filing for Chapter 11 protection. As part of its reorganization, Delphi had given its unions a December 16 ultimatum to adopt sweeping cuts in pay and benefits. The unions face even deeper cuts that could be imposed in bankruptcy court.

Delphi has proposed cutting wages to as little as $9.50 per hour from $28 per hour. Reductions also could include cutbacks to vacation days and benefits, as well as to the company’s payments in pensions and health care for retirees. Delphi is also seeking to close factories and slash its workforce as part of the reorganization.

The unions, led by the UAW, have been resistant to deep cuts, saying lower salaries would knock thousands of U.S. workers out of the middle class. Relations between the union and Delphi have deteriorated, as shown in recent public statements.

UAW leaders have firmly opposed Delphi’s plan to reward top executives with cash bonuses and stock options if the company successfully emerges from bankruptcy. Earlier this month, the six unions representing Delphi workers and retirees formed a coalition to protest the proposed wage and benefit cuts at the auto supplier. The coalition, called Mobilizing at Delphi, brings together unions that represent 33,650 Delphi workers.

A strike could severely damage GM and Ford, which are already reeling from substantial quarterly losses in U.S. operations this year. The threat of a strike has rattled the financial markets, pummeling GM’s share price and helping lead to a downgrade of GM’s debt by credit-rating agencies. Shares of GM rose 1.6 percent to close at $23.22 after yesterday’s news.

The last major UAW strike in the auto parts industry was a 1998 work stoppage at two GM factories in Flint, Mich. The plant shutdowns lasted 54 days and produced a ripple effect that closed GM’s profitable truck and SUV plants throughout North America. GM went to court to stop the strike, but it ended up costing the automaker nearly $3 billion. Since then, GM executives and UAW leaders have tried to avoid major confrontations.

In a statement, Delphi chairman and chief executive Robert S. Miller Jr. said the GM-Delphi deal and the deferral of a court motion on the union contracts are “constructive actions” that will help Delphi resolve its many significant challenges.

—Washington Post, November 29, 2005