Delphi Poised to Ask Judge to Void Union Contracts

Auto parts maker Delphi Corp. said it will move Friday to void its U.S. labor contracts, cut up to 8,500 salaried workers and close or sell a third of its plants globally as it attempts to slash costs and restructure in order to exit bankruptcy.

Delphi also said it would seek to end or renegotiate unprofitable deals with its former parent company, General Motors Corp. (GM), which remains its largest customer.

The sweeping cuts were expected to be a key part of Delphi's attempts to emerge from Chapter 11 bankruptcy protection and Delphi's chief executive said the company has made recent progress in its talks with union leaders and GM.

Delphi hopes to save about $450 million per year through the salaried work force cuts.

The United Auto Workers said it would be "impossible to avoid a long strike" if Delphi eventually imposes the wage and benefit cuts that it has proposed.

Delphi, which filed for bankruptcy protection last October, also said it would eliminate up to 40 percent of its corporate officers as it exits numerous non-core businesses.

The supplier said it expects to close or sell its non-core plants by 2008 to focus on higher margin products such as electronics, navigation and safety. It identified only eight U.S. manufacturing sites as core.

Products due to be phased out include brake and chassis systems, cockpits and instrument panels, and door modules and latches, among others.

Delphi said it expects to file the motions later Friday. If they are eventually granted, Delphi would be able to impose contract terms on its unions, but said Friday it had no plans to exercise that authority immediately.

Strikes could quickly shut Delphi and hobble GM, the world's largest automaker, at a time when GM is hoarding cash and releasing key new models.


Delphi, which GM spun off in 1999, said hearings on the labor motions would start May 9 in New York bankruptcy court, but it remains in talks with GM and its unions.

"Emergence from the Chapter 11 process in the U.S. requires that we make difficult, yet necessary, decisions," Chief Executive Steve Miller said in the statement, adding that he had seen progress in talks with GM and the unions.

Delphi in October put its U.S. operations in Chapter 11 mainly to slash wages and benefits of hourly workers and close a significant number of plants to reverse losses in North America. International units were excluded from the filing.

The company had said it needed at least the framework of an agreement by Thursday with GM and the unions representing most of its 34,000 U.S. hourly workers, or it would file the motions in the U.S. Bankruptcy Court in New York Friday.

Delphi made progress on one front, reaching a basic agreement that could make up to 17,000 blue-collar workers retirement-eligible and allow another 5,000 to return to GM.

However, the UAW and the International Union of Electrical Workers-Communications Workers of America rejected Delphi's most recent wage and benefit proposal earlier this week.

It was not immediately clear how many hourly workers Delphi would need to operate the eight core U.S. manufacturing sites it expects to keep. However, Delphi said it has about 18,000 hourly and salaried workers at the plants, which would need restructuring, including some job cuts.


The motion to reject GM contracts covers about half of the North American purchase volume revenue of about $7 billion from the automaker. Delphi also has asked GM to reset terms on more than 400 other agreements.

"We need GM to cover a greater portion of the costs of manufacturing products for GM at plants that bear the burden of our legacy costs," Miller said. "We simply cannot continue to sell products at a loss."

GM, whose shares were off 2.1 percent, said it was disappointed by Delphi's decision to reject certain supply contracts and remains committed to reaching an agreement.

Troy, Michigan-based Delphi plans to focus on products where it has significant competitive and technological advantages and growth prospects in the automotive sector as well as adjacent areas such as commercial vehicles, medical systems, aerospace and telecommunications.

The company also plans to freeze its U.S. pension plans for hourly and salaried workers to maintain benefits accrued. It will offer defined contribution plans for salaried workers and hourly workers who are more than seven years from retirement.

However, Delphi said it will still need outside help to extend contribution funding over a longer period.