NEW YORK – General Motors Corp. (GM) shares fell sharply on Monday after the automaker warned that a bankruptcy filing over the weekend by auto parts giant Delphi Corp. (DPH) could cost it as much as $12 billion.
One brokerage said Delphi's bankruptcy increased the risk that GM itself might take the same step.
Delphi bonds tumbled 5 percentage points in over-the-counter trading, while GM shares fell 4.5 percent.
Delphi, which has a bankruptcy court hearing scheduled for tomorrow, filed for Chapter 11 (search) protection in Bankruptcy Court in New York on Saturday. It was the largest such filing in U.S. automotive history and threatens to have broad implications across the industry.
GM said the Delphi filing did not necessarily make the automaker liable for post-retirement health-care and pension benefits for employees at Delphi, which it spun off in 1999.
But the range of exposure — under benefit guarantees GM made as part of the 1999 spinoff — extends from potentially no material impact to up to $11 billion, with amounts closer to the midpoint more possible than either end, GM said.
"Such payments, if any, are not expected to have a material impact on GM's cash flows in the short-term," GM said in a statement late on Saturday.
"However, if payable, these payments would be likely to increase over time and could have a material impact on GM's liquidity in coming years."
GM also said Delphi, the nation's biggest auto parts supplier, owes it about $1.2 billion, an amount it may not be able to recover.
Citing fallout from the Delphi bankruptcy, Banc of America cut its rating on GM to "sell" from "neutral" and cut its price target on GM shares to $18 from $32.
Banc of America also increased its estimate of the likelihood that GM itself would file for bankruptcy to 30 percent from 10 percent.
GM spokesman Jerry Dubrowski declined to comment on the Banc of America moves.
GM, which posted a loss of $2.5 billion in its North American operations in the first half of 2005, faces many of the same problems that drove Delphi into bankruptcy, led by high wage and benefit costs.
In its weekend statement, GM said it faced an increased risk of costly supply disruptions after the Delphi bankruptcy. Delphi is GM's largest supplier, with about $2,400 in content per North American vehicle, according to Merrill Lynch analyst John Casesa.
Troy, Mich.-based Delphi has struggled since its spinoff from GM, posting net losses of $741 million in the first half of 2005 alone. It had sought financing from GM and sharp cuts in wages and benefits from the United Auto Workers (search) union to restructure unprofitable U.S. operations.
The Chapter 11 filing potentially allows steep cuts in wages, benefits and jobs to go forward without UAW approval. Delphi has 50,600 U.S. employees with about 44 manufacturing sites and 13 technical centers.
Delphi's foreign entities, which were not included in the bankruptcy filing, have more than 134,000 workers who support 120 manufacturing sites and 20 technical centers in nearly 40 countries.
In court papers filed over the weekend, Delphi said it would ask a judge to void its labor contracts if it could not reach a restructuring agreement with its unions by mid-December.
The company said it plans to submit proposed contract changes to the unions, in writing, on or before October 21.
Delphi Chief Executive Steve Miller told Reuters on Saturday to expect a significant reduction in U.S. employment and manufacturing operations, including dropping employees — including 4,000 idle UAW workers the company pays under its contract — as a reduction in operations makes them unnecessary.
Delphi shares were down 57 percent to 48 cents in midday trade on the New York Stock Exchange. The exchange said it was reviewing Delphi's listing status.
GM shares were down $1.27 at $27.02 on the NYSE. GM shares have fallen about 35 percent in the last 12 months, compared with a 6 percent rise in the broad S&P 500 index.