Thursday, August 31, 2006

General Motors files multibillion-dollar claim against Delphi

General Motors files multibillion-dollar claim against Delphi
By Joseph Rebello
Last Update: 6:33 PM ET Aug 7, 2006

WASHINGTON -- Delphi Corp. said General Motors Corp. made a "multibillion-dollar" demand for payment against the struggling auto-parts company, which has been relying on GM's help to carry out its bankruptcy reorganization.

In papers filed with the U.S. Bankruptcy Court in Manhattan on Friday, Delphi said GM made the demand July 31 in a proof of claim filed against Delphi and its subsidiaries. Such filings are made by creditors of companies in bankruptcy proceedings. They constitute a formal demand for payment, although the claim is seldom paid in full.

Delphi, a former GM subsidiary that is also GM's biggest supplier, has said it has its own demands for payment to make against GM. Its creditors have estimated GM's debt to Delphi in the "billions of dollars" and have complained that Delphi has been slow in demanding payment from the world's biggest auto manufacturer.

Delphi, however, said now isn't the time to pick a fight with GM because a quarrel could jeopardize its reorganization effort. "GM's participation in Delphi's labor transformation is a strategic element of the reorganization," Delphi said in the papers filed Friday.

The company asked U.S. Bankruptcy Judge Robert Drain, who is overseeing Delphi's Chapter 11 reorganization, not to grant its creditors committee the right to sue GM on Delphi's behalf. Delphi said its board of directors intends to assert "some or all" of the company's demands against GM before an October 2007 deadline.

Drain is scheduled to consider the matter at an Aug. 17 court hearing.

Delphi is the largest of the U.S. auto-parts companies that have tumbled into bankruptcy proceedings over the last year. It filed for Chapter 11 protection last October, listing $22 billion in debt. Since then, the company has been negotiating both with GM and its labor unions to find ways to cut costs.

During a troubled phase of those negotiations in March, Delphi blamed GM for many of its financial difficulties. Referring to the company's origins as a GM subsidiary, Delphi said that "as a result of the manner in which Delphi was created...the debtors' products do not represent a strategic vision." Those circumstances, it said, caused Delphi to lose billions of dollars after the company was spun off from GM in 1999.

Delphi's cost-cutting efforts have since progressed considerably. With financial assistance from GM, it persuaded thousands workers to accept early-retirement incentives. The company has said those buyouts have created "a more favorable environment" for an agreement with its unions on cuts in wages and benefits. It expects to exit Chapter 11 proceedings by the middle of 2007.

Delphi has said GM agreed to bear half the cost of the labor-reduction programs it initiated this year - in return for the right to file a general unsecured claim against the company.

Delphi hasn't yet specified those costs, but GM has in court papers said the claim it agreed to file against Delphi is "substantially less" than it was entitled to. It said it settled for a "general unsecured claim" that obligates the company to wait in line with all other unsecured creditors seeking repayment from Delphi. Such creditors typically recover a fraction of their claims.

Renae Rashid-Merem, a GM spokeswoman in Detroit, said GM filed its claim against Delphi "along with all other creditors" who had to meet a July 31 filing deadline. She declined to provide details of the claim, saying that information isn't public. GM's claims, she said, were "primarily" general unsecured claims.

(Terry Kosdrosky in Detroit also contributed to this article.)

Renee Rashid-Merem, a General Motors Corp. spokeswoman in Detroit, said GM filed its claim against Delphi "along with all other creditors" who had to meet a July 31 filing deadline.

(In an item published at 4:29 p.m. EDT, Rashid-Merem's first name was misspelled.)
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