Auto parts supplier Delphi Corp. argued Tuesday that it must be given the right to cancel its labor contracts, telling a bankruptcy judge that move is critical to its cost cutting and reorganization.

Delphi, seeking power which could lead to a devastating strike, told Judge Robert Drain that it has little choice.

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"Without transforming Delphi's North American operation to be competitive in North America, let alone globally, these debtors cannot reorganize and the corporation will fail," Delphi attorney Jack Butler told Drain and a packed courtroom.

"Simply stated, Delphi must become competitive to survive," Butler said.

But lawyers for the United Auto Workers union argued that letting the company cancel its contracts would give Delphi an overwhelming and unfair advantage, allowing it to force through deep wage cuts and rob its workers of long-promised benefits.

"This is like a poker game where they have an ace card given to them by the court before the rest of the cards are dealt," said Bruce Simon, an attorney for the UAW.

"We'll see what the evidence shows," Drain said.

The hearing in U.S. Bankruptcy Court for the Southern District of New York is expected to last for several days and Drain is not expected to rule for weeks.

But the stakes were very clear Tuesday as lawyers for the company, unions, creditors and other interested parties beseeched the judge.

Delphi has proposed cutting its workers wages from $27 an hour to $16.50 an hour. That proposal, however, would require a large contribution from General Motors Corp. (GM), Delphi's former parent and largest customer.

But GM has not agreed to supplement Delphi workers' wages. Without such a contribution, Delphi is only prepared to pay its workers $12.50 an hour.

The UAW has countered that wage cuts are not necessary and that company has no concrete plan to resurrect itself. It says the only way that will happen is for negotiations to take place between Delphi, unions and GM.

Giving Delphi the right to trash labor contracts would give it an unfair advantage and undermine those negotiations, says the UAW. The union has pledged to strike if Delphi cancels the contracts.

Such a strike could have devastating impact on Delphi, its 33,000 hourly workers and on GM, which relies heavily on Delphi parts for its own auto production.

Delphi says that if Drain rules that it should not be given the power to cancel its contracts on its own, it wants the judge himself to do so.

In a preliminary ruling Tuesday, Drain said that in addition to Delphi and the UAW, creditors, shareholders and other parties will be allowed to present their own arguments in the matter before he makes his decision.

The end result will be closely watched by workers at GM and at Delphi, some of whom protested outside the courthouse entrance Tuesday. They directed their message at Delphi CEO Steve Miller, the most vocal advocate of the company's intention to slash its costs.

"Steve Miller, Job Killer," chanted the protesters, some of who wore T-shirts printed with the slogan "Our Jobs, Our Dignity."

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