Tuesday, May 02, 2006

GM ends price relief for Delphi

Tuesday, May 02, 2006

GM ends price relief for Delphi

Move to not extend parts contract may set back bankrupt supplier; deadline for buyout offers extended.

Brett Clanton / The Detroit News

Bankrupt Delphi Corp. failed to reach an agreement with General Motors Corp. that would have extended GM's pledge to pay higher prices for parts while the supplier regroups in Chapter 11.

Since November, GM had provided the relief under an open-ended pact, but stopped the arrangement in March, Delphi said Monday in a filing with U.S. Securities and Exchange Commission.

GM's move to reinstate the price cuts could be a setback for Delphi, which hopes to emerge from bankruptcy by next year and benefited from the additional GM revenue at an important time.

In a separate move, GM and Delphi on Monday extended the deadline until June 23 for hourly workers to accept buyout offers aimed at slashing thousands of jobs at the struggling companies.

Workers previously had until late May or early June, depending on where they worked, to decide on the offers. But strong early interest in the offers and administrative issues led the companies to push back the deadline, GM and Delphi officials said.

But interest in the buyouts could be good news for both companies, which have made lowered U.S. labor costs a key part of their turnaround efforts.

The developments highlight the up-and-down nature of the massive restructuring efforts at both companies and how their fates are intertwined.

But GM's move to enforce price cuts at Delphi may signal it is hardening its bargaining position.

The automaker has complained that it pays a $2 billion annual premium on Delphi parts because of the supplier's high labor and operating costs and has demanded price cuts in recent years.

"There is a kernel of truth in what GM is saying," said Jim Gillette, a supplier industry analyst with CSM Worldwide in Grand Rapids. Delphi continues to benefit from "sweetheart" contracts with GM that date to its 1999 spin-off from the automaker, he said.

Yet in bankruptcy, Delphi has moved to reject a large number of GM parts contracts it claims are "unprofitable" -- a move that has not set well with GM, especially as Delphi seeks other financial support for its turnaround.

Delphi spokeswoman Claudia Piccinin said GM's decision to forgo planned price reductions was always intended to be "interim financial support" while the sides worked on a long-term solution to make the supplier more competitive. "We didn't ever lay out the terms of it," she said.

GM's move to enforce the price cuts comes ahead of a May 12 court hearing on Delphi's motion to terminate and exit some GM contracts, and days before a May 9 hearing on the supplier's motion to void its union contracts.

In the SEC filing Monday, Delphi said discussions are ongoing with GM and it expects the automaker to provide at least some financial support, though it did not specify how much or in what form.

From Oct. 8 -- when Delphi filed for bankruptcy -- to March 31, the company lost $1.6 billion on $9.1 billion in sales. Delphi lost $56 million in March alone, according to monthly earnings reports that companies in bankruptcy are required to file.

Central to the turnaround efforts at both Delphi and GM are the acceptance of buyout offers, which are the byproduct of a historic deal with the United Auto Workers struck in March.

The buyouts -- ranging from $35,000 to $140,000 -- have been extended to all of GM's 113,000 U.S. workers and to 13,000 Delphi workers.

Dan Flores, a GM spokesman, confirmed that the deadline for accepting an offer had been extended to June 23.

He declined to say how many employees had come forward to sign up for the program, but said there had been strong initial interest. "Absolutely, we are pleased with the take rate so far," he said.

The early retirement offers are designed to take out a "significant portion" of the 30,000 positions that GM plans to cut by 2008 under its North American restructuring plan announced last fall, he said. Under a reorganization filed in March, Delphi plans to close or sell 21 of 29 U.S. plants and cut more than two-thirds of its 33,000-strong work force.

Lindsey Williams, a Delphi spokesman, said the supplier extended its deadline for accepting the buyouts mostly for "administrative reasons." Delphi, he said, is pleased with the response.

"For us," he said, "it has been fairly strong."

You can reach Brett Clanton at (313) 222-2612 or bclanton@detnews.com.


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