Delphi wants to void its union contract


UAW Local 651 president Russ Reynolds addresses a crowd of workers Wednesday at the UAW Local 651 in Flint, Mich.

The Associated Press
Published: Saturday, April 1, 2006 at 6:01 a.m.
Last Modified: Friday, March 31, 2006 at 11:26 p.m.
Auto parts supplier Delphi Corp. unveiled a broad restructuring plan on Friday that would cut 8,500 salaried jobs, shut a third of its plants worldwide and asked a bankruptcy court judge to void its labor agreements in a move that sent a shudder through the auto industry.
The United Auto Workers warned "it will be impossible to avoid a long strike" if the judge agrees to void the contracts and Delphi imposes its most recent wage proposal. A strike could put General Motors Corp., Delphi's former parent and largest customer, perilously close to bankruptcy and hurt other automakers and smaller suppliers as well.
GM and Delphi have deep ties. GM accounted for just under half of Delphi's $26.9 billion in revenues last year, and is required to pay some of Delphi's pension obligations if Delphi is in bankruptcy. The world's largest automaker 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.
"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 a wage agreement. 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," it said.
Delphi filed a separate motion asking the court to reject some unprofitable contracts with GM. The company also said it will freeze its hourly and salaried pension programs later this year and move employees into a defined-contribution plan.
"We are clearly focused on Delphi's future," Delphi Chairman and CEO Robert S. "Steve" Miller said in a statement. "Emergence from the Chapter 11 process in the U.S. requires that we make difficult, yet necessary, decisions.
Troy-based Delphi filed for bankruptcy in October and intends to emerge from bankruptcy during the first half of 2007. To meet that goal, it plans to exit certain product lines and sell or close noncore plants by 2008, including 21 of its 29 U.S. plants.
But unions could stand in its way. The International Union of Electronic Workers-Communications Workers of America, which represents 8,000 Delphi hourly workers, has already voted to strike if the contracts are thrown out, and the UAW could do the same.
"We will not be threatened or intimidated into accepting an agreement that dismantles our plants and devastates our membership," said Henry Reichard, who represents plants in Ohio and other states for the electronics workers' union.
Delphi's motion to void its labor contracts was widely expected; the company had delayed similar motions three times before. The company says it was saddled with uncompetitive labor agreements when it was spun off from GM in 1999. In its court filing, it says it pays workers $78.63 per hour in wages and benefits, or more than three times more than the average auto supplier.
Delphi, GM and its unions spent months negotiating but were unable to reach a wage agreement. Under its most recent proposal, which was rejected by the UAW and other unions, Delphi proposed dropping hourly pay to $22 per hour from $27 per hour through September 2007, then to $16.50 an hour.
Delphi said it plans to keep negotiating with GM and its unions, and some analysts said the added urgency could help the parties reach a deal. "Steve Miller did what he had to do. He threw the softest hardball he could, by seeking to negotiate but starting the clock," said Pete Hastings, an analyst with the investment company Morgan Keegan & Co.
"I think he's doing what he needs to do to make Delphi in the U.S. profitable."
Judge Robert Drain has scheduled a hearing on Delphi's request for May 9-10 and won't decide whether to void Delphi's contracts until after that hearing.
If Drain allows Delphi to void its contracts, Delphi would still have to take the step of throwing them out before the unions could strike, although the company already faces the threat of unauthorized strikes and worker slowdowns.
Delphi also plans to cut 25 percent of its global salaried work force, or around 8,500 workers, including up to 40 percent of its corporate officers. Delphi said that should save $450 million per year.
The company has identified eight U.S. plants that are considered critical to its U.S. operations. They are located in Brookhaven, Miss; Clinton, Miss.; Grand Rapids, Mich.; Kokomo, Ind.; Lockport, N.Y.; Rochester, N.Y.; Warren, Ohio; and Vandalia, Ohio. Delphi said those plants will focus on profitable parts such as safety features, electronics, diesel and gas powertrains and climate control products.
Twenty-one other plants that do not make core products - including those that make brakes and chassis, instrument panels, door modules and steering components - will be sold or closed. That includes plants in Milwaukee; Dayton, Ohio; Kettering, Ohio; Anderson, Ind.; Laurel, Miss.; Athens, Ala.; Flint, Adrian and Saginaw.
"We believe many of these product lines have the potential to compete successfully under new ownership that has the resources and capital to invest in them," Delphi President and Chief Operating Officer Rodney O'Neal said in a statement.
Delphi also is asking the court to reject unprofitable contracts with GM. The initial motion covers around half of Delphi's annual volume with GM. Delphi said the judge is expected to consider the motion on May 12, which gives both companies time to continue negotiating prices.
"We simply cannot continue to sell products at a loss," Miller said.
Delphi also said it will freeze pension benefits for hourly workers on Oct. 1 and for salaried workers on Jan. 1 and will replace them with plans that require employee contributions with company matches. Workers will still have access to any accrued benefits.
The company may ask for relief from the Pension Benefit Guaranty Corp., the Internal Revenue Service and possibly Congress so that when it emerges from bankruptcy protection it won't immediately owe billions of dollars to its underfunded pension plan. The company expects it will take at least six years to fully fund its plan.
Despite unions' fury at Delphi's wage proposals, Delphi said it is encouraged by its progress in negotiations so far and hopes to reach an agreement outside of court. GM's cooperation is key, since Delphi would depend on GM to supplement its wage offer or provide benefits. For example, in Delphi's latest proposal, GM would have paid a one-time bonus of $50,000 to each worker, and without GM's assistance, wages would fall to $12.50 an hour. GM has said a Delphi settlement could cost it between $5.5 billion and $12 billion.
Delphi, GM and the UAW did agree last week to a buyout offer for approximately 17,000 U.S. hourly workers. Under that agreement, workers will be eligible for a lump sum payment of $35,000 to retire. Also, up to 5,000 Delphi workers will be eligible to return to GM.
GM shares rose 25 cents to $21.31 in afternoon trading on the New York Stock Exchange after trading as low as $20.34 earlier in the session. Delphi no longer trades on the NYSE.

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