Delphi in Restructuring Talks to Avoid Bankruptcy

Delphi Corp. (DPH), the nation's largest maker of auto parts, on Friday confirmed it is in talks with its main unions and its former parent and biggest customer General Motors Corp. (GM) about restructuring its U.S. operations to avoid bankruptcy.

The company also disclosed it had begun drawing on its $1.8 billion credit line to its finance its operations. It said it initiated a draw down of $1.5 billion on Wednesday.

Delphi shares fell 52 cents, or 9 percent, to $5.26 on the New York Stock Exchange (search). The stock has traded in a range of $3.20 to $9.63 in the past year.

"What you see is an industry in which many of the players are just buckling under the pressure," Delphi president and chief operating officer Rodney O'Neal said earlier this week at an automotive conference in this northern Michigan city. "It would seem that the storm clouds we're seeing today are not going away, and we'll just have to get used to the weather."

Rumors that Delphi was talking with GM and its top union about how to restructure its operations were circulating even before Delphi's new chairman and CEO Robert S. Miller joined the company on July 1. Miller is a veteran turnaround specialist who took Bethlehem Steel into bankruptcy in 2001 and also engineered restructuring efforts at Waste Management Inc. and Aetna Inc.

In a research note to investors last month, Merrill Lynch analyst John Casesa said Miller had met with GM chairman and CEO Rick Wagoner (search) and United Auto Workers (search) president Ron Gettelfinger and told them Delphi urgently needs help. Casesa said Miller wanted a deal by this summer and said bankruptcy could be an option if the talks failed.

The Troy, Mich.-based supplier posted a first-quarter loss of $409 million, or 74 cents a share, down from earnings of $53 million, or 9 cents a share, a year earlier.

Delphi has been straddled with high labor and raw materials costs at the same time GM has been cutting production. In an effort to control rising inventory, GM cut production by 11 percent between January and June and plans a 9 percent cut in the third quarter.

Delphi is scheduled to release second-quarter earnings on Monday. Delphi spokeswoman Claudia Baucus said the company also plans to make further comments about the $1.5 million drawdown at that time.

GM spun off Delphi's operations in 1999 and accounts for the bulk of its business. Delphi has 184,000 employees worldwide and 167 manufacturing facilities.

Delphi has nearly 25,000 hourly workers represented by the UAW who make $27 an hour, Baucus said. By comparison, hourly workers at rival supplier Visteon Corp. will make an average of $17 per hour once Visteon completes a restructuring plan with former parent Ford Motor Co. this fall.

Delphi might try to fashion a restructuring plan similar to Visteon's deal with Ford. In an effort to stave off bankruptcy, Visteon is selling 24 unprofitable plants back to Ford, which will try to sell most of them. Visteon is shedding unprofitable businesses like chassis manufacturing and glass so it can concentrate on interiors, climate systems and electronics.

Ford also will pay Visteon $550 million in restructuring costs, but says the deal could eventually save it millions on parts.

When GM and Ford spun off their parts divisions, they ensured hourly workers would still make the same wages, a provision some analysts say made it impossible for Delphi and Visteon to compete. Delphi's labor agreements with the UAW expire in 2007.