Delphi Delays Court Filing to Continue GM Talks

DETROIT – Delphi Corp. (DPH) dodged a bullet Friday, avoiding a devastating strike by delaying a bid to reject its labor agreements. But the nation's largest auto supplier warned it will renew efforts to cancel its contracts in six weeks if it fails to reach a settlement with its unions and its largest customer, General Motors Corp. (GM)

Delphi, which filed for bankruptcy in October, says its expensive U.S. labor agreements make it impossible to compete in a global economy. The company first threatened in December to ask a bankruptcy court to reject its union contracts. Friday was the third time Delphi delayed the filing, which also seeks to terminate health care and life insurance for retired hourly workers.

Delphi said it will try to settle with GM and its unions by March 30. If no agreement is reached, the company said it will file a motion with the court on or before March 31.

The United Auto Workers, which represents the majority of Delphi's 34,000 hourly workers, has threatened to strike if a judge approves Delphi's request to void its contracts. Local unions have been holding strike training sessions for the last two months.

Some Wall Street analysts said the delay gives hope that Delphi, GM and the UAW will agree to terms that will help Delphi's workers as the company reorganizes. GM spun off Delphi in 1999, but the supplier remains saddled with the automaker's labor rates.

"The decision to delay is indicative of progress in ongoing talks between Delphi, GM and the UAW, increasing the likelihood that a protracted strike will be avoided," JPMorgan analyst Himanushu Patel said in a note to investors.

But others said the delay doesn't make an agreement more likely.

"As it relates to potential Delphi help from GM, we believe the three sides are too far apart and, at some point, GM will need to take a strike (or) file bankruptcy anyway," Bank of America analyst Ron Tadross said in a research note.

If Delphi does ask the court to void its contracts on March 31, the court has scheduled a May 8 hearing on the request.

The stakes are high for GM, which buys nearly one-quarter of its parts from Delphi. A Delphi strike could cost GM as much as $5 billion per month, Patel said. GM Chairman and CEO Rick Wagoner said Friday that it will help to have more time to hammer out a deal.

"This is a significant set of issues that need to be addressed, and they involve a number of parties. And frankly, they're big issues, tough issues," Wagoner told reporters after a speech in Miami. "So I think it's logical that it's going to take some time to work them out. But I do think the pace of discussions is picking up."

UAW President Ron Gettelfinger and chief Delphi negotiator Richard Shoemaker praised Delphi's action Friday but said all three parties must participate in the final agreement.

"We have said consistently that the only basis of finding satisfactory resolution to these matters is through the use of the collective bargaining process with Delphi, GM and the UAW," Gettelfinger and Shoemaker said in a joint statement.

Delphi Chairman and CEO Robert "Steve" Miller said discussions to date have been helpful but "major obstacles" remain.

"As we have said before, we remain committed to reaching a consensual agreement," Miller said in a statement. "This deadline should provide us sufficient time to deal with the complexities inherent in fashioning practical and workable solutions and an effective agreement that works for all of us."

Delphi says its U.S. hourly workers made approximately $75 an hour in wages and benefits in 2005, a level that isn't competitive with other union and nonunion suppliers. Delphi has asked the UAW to cut workers' pay and benefits by as much as 60 percent, a request the union has rejected.

GM, Delphi and the UAW are discussing several solutions, including GM-funded buyouts for Delphi workers or agreements that ensure Delphi workers can get jobs at GM. Last month, GM took a pretax charge of $3.6 billion associated with Delphi and said it expects to spend between $3.6 billion and $12 billion on benefits promised to Delphi workers.

GM has another reason to resolve the situation without a strike: its planned sale of a majority stake in its finance arm, General Motors Acceptance Corp. Goldman Sachs auto analyst Robert Barry said GM won't be able to proceed with GMAC until the Delphi situation is settled.

"We doubt a buyer gets in front of risk that a strike cripples GM North America," Barry said in a note to investors. "UAW negotiations tend to go down to the wire — now March 31 — so a GMAC sale is harder to envision before sometime in the second quarter."

GM shares fell 36 cents, or 1.6 percent, to close Friday at $21.92 on the New York Stock Exchange.

Troy-based Delphi is one of the world's largest auto suppliers, with nearly $29 billion in revenues in 2004. The company lost more than $1.1 billion in December as it continued to work through its reorganization. Delphi is required to file monthly financial reports with the U.S. Bankruptcy Court.

Delphi isn't the only auto supplier seeking to void its labor contracts. A bankruptcy court judge will consider a similar request from Novi-based Tower Automotive on Feb. 27. Tower's hourly workers have already voted to go on strike if the judge approves Tower's request.