Delphi Files for Bankruptcy
10-09-05, 06:52 PM
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Delphi Files for Bankruptcy
http://www.freep.com/cgi-bin/flashne...1_20051008.htm
Delphi Files for Bankruptcy
Saturday, October 8, 2005
By MICHAEL ELLIS
FREE PRESS BUSINESS WRITER
Delphi Corp., the nation’s largest automotive parts supplier and employer of 14,700 in Michigan, declared Chapter 11 bankruptcy Saturday after months of negotiations with General Motors Corp. and the UAW failed to produce a deal to stop the financially strapped company from bleeding money.
The bankruptcy, the largest ever in Michigan, will result in the closure, sale or consolidation of a "substantial segment" of Delphi's U.S. plants, threatening the livelihood of thousands of workers, while dealing another blow the to state's economy already struggling with a high unemployment rate.
The giant auto supplier, spun off from General Motors Corp. in 1999, and 38 of its U.S. subsidiaries filed voluntary petitions for reorganization in the Southern District of New York. None of its foreign operations filed.
"There are some substantial plant closings that are probably going to have to take place,“ Delphi Chairman and Chief Executive Robert S. (Steve) Miller told the Free Press in an interview. That and the future size and structure of the company will be decided in bankruptcy court over the next few months, he said.
Delphi will continue to operate in bankruptcy, which will keep its creditors at bay while it reorganizes its business, but its supply of parts to GM and other companies could be disrupted, stopping production of new cars and trucks. The employer of 185,000 worldwide, including 33,000 U.S. union workers, expects to emerge from Chapter 11 in early to mid-2007.
The Troy-based supplier, which lost $4.8 billion in 2004 and $741 million through the first six months this year, had warned for months it could be headed toward bankruptcy unless its unions agreed to substantial concessions and GM gave financial assistance.
In its bankruptcy petition, Delphi lists assets of $17.1 billion and debts of $22.17 billion as of Aug. 31. The company estimates it had total assets of $16.5 billion and debts of $20.9 billion as of Saturday, spokeswoman Claudia Baucus said. Its debts include billions of dollars in pension and health care obligations for its current and retired workers.
Delphi’s bankruptcy is one of the largest U.S. history, in terms of asset size. It surpasses Kmart Corp. which declared bankruptcy in 2002, listing $16.3 billion in assets. Telecom company Worldcom Inc., with assets of $103.9 billion, holds the record for the largest corporate bankruptcy in U.S. history. It declared bankruptcy in 2002.
Delphi could not continue business with the high costs of its labor contracts, which pay out substantially higher wages and benefits than competitors and restrict it from closing plants and laying off workers, Miller said.
On Thursday, several UAW locals issued flyers to members that said Delphi was seeking pay cuts of as much as 63%, plus sharp increases in worker-paid health-care costs, the right to close plants and other major concessions.
Current and retired Delphi workers will have to wait to see what happens to their pension plan, which Delphi could terminate. If that happened, the federal Pension Benefit Guaranty Corp. would take over Delphi's pension obligations, but payments for many would be cut in half.
Miller, a veteran of corporate restructurings who has taken several companies through bankruptcy, has only terminated the pensions once before, at Bethlehem Steel Corp. “That’s one when we were bleeding red ink, and we had only 12,000 active workers trying to create value for 130,000 retirees. We’ve got a much better chance to preserve the pension obligations here.”
Hundreds, if not thousands, of smaller suppliers do business with Delphi’s U.S. plants, and they could see much of their work reduced or eliminated.
GM said in a statement that the bankruptcy could disrupt the supply of auto parts from Delphi, if it rejects or threatens its contracts with the automaker, which could result in the stoppage of vehicle production. However, Delphi has told GM that it expects no interruptions in its supply of parts.
GM estimated that it pays a $2 billion premium to parts from Delphi, and with the bankruptcy, the automaker could cut or eliminate those costs as the parts supplier reorganizes its business.
Delphi’s parts shipments to its former owner GM are critical as the automaker prepares for the launch early next year of its full-size sport-utility vehicles.
Suppliers that have payments due from Delphi could only receive partial payment, but the company has some mechanisms to deal with troubled companies, Miller said.
"We have the capability of dealing with hardship cases. I don’t see any devastating impact on our supply base,” Miller said.
GM could also be liable for up to $10 billion to cover the costs of Delphi retiree pension, health care and benefits if the company went bankrupt, part of the agreement to spin off the parts supplier in 1999. Neither GM or Delphi have given estimates on GM's liability. “Potentially it could be a very large number, that’s why they keep talking to us," Miller said.
The bankruptcy will make Delphi shares practically worthless. Delphi shares plunged 49 percent to close at an all-time low of $1.12 on Friday on the New York Stock Exchange.
Miller said the company had been engaged in “constructive discussions” with its major unions, but was unable to modify its collective bargaining agreements without help from GM or court intervention. The complexity of the business and impending changes in bankruptcy laws on Oct. 17 forced the company to file for protection from creditors on Saturday.
“There was just too much on our plate for the time available,” he said. "This is a very complex subject because you’re talking about thousands of lives."
Delphi, which makes hundreds of automotive components from batteries and air bags to XM satellite radio systems, is the state’s fourth-largest publicly traded company, only behind GM, Ford Motor Co. and Dow Chemical Co.
Miller said the company would make proposals to its unions this month to address ways to make labor costs competitive and to address its non-profitable operations.
Delphi’s restrictive union contracts could be forced open for renegotiation by a bankruptcy court judge. A judge could allow Delphi to close underperforming plants, lay off unneeded workers, and restructure its contracts with other companies, dealing a blow to the UAW and the companies that work with Delphi.
The UAW declined to comment on Delphi’s bankruptcy.
Delphi could follow the example of auto parts suppliers Intermet Corp. and Citation Corp., both of which cut their wages and benefits in bankruptcy court.
Delphi pays its U.S. hourly workers wages and benefits that an average of $65 an hour compared with an average of $24 to $25 at its competitors. Under part of the union contract commonly called the jobs bank, Delphi expected to spend $400 million on wages and benefits for 4,000 employees who get paid even when there is no work for them.
Visteon Corp. was in even worse shape than Delphi before it reached a life-saving agreement with its former owner, Ford Motor Co. Visteon transferred 23 plants and nonmanufacturing facilities, including 13 in Michigan, to Ford on Oct. 1. That made the auto-parts supplier more competitive by cutting the average hourly wage at Visteon’s plants and the number of its hourly employees covered by the United Auto Workers from 17,400 to 5,000.
Delphi suffered from many of the same problems as Visteon, and both needed to reorganize their business, said Tom Stallkamp, the former Vice Chairman of DaimlerChrysler AG. “They just had too many legacy plants, too many plants that were captive to just one customer,” he said.
Most at peril are the 11 troubled plants that are grouped together in Delphi’s Automotive Holdings Group, which collectively posted an operating loss of $527 million on sales of $1.7 billion through the first six months of this year.
“They are very much at risk,” Miller said. “That represents where a lot of our cost problems are resided.”
The 11 plants, including one in Michigan, make a wide variety of automotive parts — including batteries, filters, compressors and generators — that are considered low-tech and not difficult to make a profit from.
Most hard hit could be Dayton, Ohio, where four of the plants employing 5,700 workers are located.
Delphi is just the latest auto supplier to file Chapter 11. Collins & Aikman Corp., Tower Automotive, Oxford Automotive Inc., Intermet and Citation are some of the largest suppliers that have taken that path recently.
Six years ago, when GM spun off Delphi, executives were optimistic about the company’s future. Then-Chairman J.T. Battenberg III said when GM’s board of directors agreed to the spin-off in April 1999: “This will give us the opportunity to grow and enter the marketplace on an equal basis with all of our competition as an independent supplier.”
But Delphi has been almost constantly reorganizing since, closing plants, shedding thousands of jobs and losing money in three of the last six years.
Delphi has floundered as GM and Ford have lost U.S. market share and cut production of cars and trucks. Soaring health-care, energy and material costs have also hit Delphi, as well as continual pressure from the automakers to cut costs.
And it has wrestled with accounting problems. Last year, Delphi became the target of an investigation by the U.S. Securities and Exchange Commission into how the company accounted for $90 million in information-technology contracts, mostly via deals with the computer-services firm Electronic Data Systems Corp.
As part of its own investigation into its accounting, which revealed that Delphi overstated its profits and misrepresented how much cash it made from operations, the supplier forced out Chief Financial Officer Alan Dawes in March. Five other financial officers, including treasurer Pam Geller and chief accountant and controller Paul Free, were either forced out or left the company this year as a result of the accounting errors.
Delphi will finance its business while in bankruptcy with $4.5 billion in debt facilities and financing lines, allowing it to pay employee wages, salaries and benefits as well as its operating costs. The company has secured up to $2 billion in senior secured debtor-in-possession financing from a group of lenders led by JPMorgan Chase Bank and Citigroup Global Markets Inc.
Also on Saturday, Delphi named Robert J. Dellinger as executive vice president and chief financial officer, effective immediately. Dellinger, 45, most recently was the executive vice president and chief financial officer for Sprint Corp. He succeeds John D. Sheehan, who will continue as chief accounting officer and controller on an interim basis. Sheehan’s primary focus will be on leading Delphi's restructuring activities.
Delphi current management team will continue to lead the company. On Friday, the company increased the severance package, the amount paid to officials if they are laid off or fired, for 21 of its top executives. Delphi said its current severance package was not competitive, and it needs to encourage management to stick with the company.
On Tuesday, Delphi and its creditors will meet in New York bankruptcy court for the first time, beginning its massive reorganization.
Delphi Files for Bankruptcy
Saturday, October 8, 2005
By MICHAEL ELLIS
FREE PRESS BUSINESS WRITER
Delphi Corp., the nation’s largest automotive parts supplier and employer of 14,700 in Michigan, declared Chapter 11 bankruptcy Saturday after months of negotiations with General Motors Corp. and the UAW failed to produce a deal to stop the financially strapped company from bleeding money.
The bankruptcy, the largest ever in Michigan, will result in the closure, sale or consolidation of a "substantial segment" of Delphi's U.S. plants, threatening the livelihood of thousands of workers, while dealing another blow the to state's economy already struggling with a high unemployment rate.
The giant auto supplier, spun off from General Motors Corp. in 1999, and 38 of its U.S. subsidiaries filed voluntary petitions for reorganization in the Southern District of New York. None of its foreign operations filed.
"There are some substantial plant closings that are probably going to have to take place,“ Delphi Chairman and Chief Executive Robert S. (Steve) Miller told the Free Press in an interview. That and the future size and structure of the company will be decided in bankruptcy court over the next few months, he said.
Delphi will continue to operate in bankruptcy, which will keep its creditors at bay while it reorganizes its business, but its supply of parts to GM and other companies could be disrupted, stopping production of new cars and trucks. The employer of 185,000 worldwide, including 33,000 U.S. union workers, expects to emerge from Chapter 11 in early to mid-2007.
The Troy-based supplier, which lost $4.8 billion in 2004 and $741 million through the first six months this year, had warned for months it could be headed toward bankruptcy unless its unions agreed to substantial concessions and GM gave financial assistance.
In its bankruptcy petition, Delphi lists assets of $17.1 billion and debts of $22.17 billion as of Aug. 31. The company estimates it had total assets of $16.5 billion and debts of $20.9 billion as of Saturday, spokeswoman Claudia Baucus said. Its debts include billions of dollars in pension and health care obligations for its current and retired workers.
Delphi’s bankruptcy is one of the largest U.S. history, in terms of asset size. It surpasses Kmart Corp. which declared bankruptcy in 2002, listing $16.3 billion in assets. Telecom company Worldcom Inc., with assets of $103.9 billion, holds the record for the largest corporate bankruptcy in U.S. history. It declared bankruptcy in 2002.
Delphi could not continue business with the high costs of its labor contracts, which pay out substantially higher wages and benefits than competitors and restrict it from closing plants and laying off workers, Miller said.
On Thursday, several UAW locals issued flyers to members that said Delphi was seeking pay cuts of as much as 63%, plus sharp increases in worker-paid health-care costs, the right to close plants and other major concessions.
Current and retired Delphi workers will have to wait to see what happens to their pension plan, which Delphi could terminate. If that happened, the federal Pension Benefit Guaranty Corp. would take over Delphi's pension obligations, but payments for many would be cut in half.
Miller, a veteran of corporate restructurings who has taken several companies through bankruptcy, has only terminated the pensions once before, at Bethlehem Steel Corp. “That’s one when we were bleeding red ink, and we had only 12,000 active workers trying to create value for 130,000 retirees. We’ve got a much better chance to preserve the pension obligations here.”
Hundreds, if not thousands, of smaller suppliers do business with Delphi’s U.S. plants, and they could see much of their work reduced or eliminated.
GM said in a statement that the bankruptcy could disrupt the supply of auto parts from Delphi, if it rejects or threatens its contracts with the automaker, which could result in the stoppage of vehicle production. However, Delphi has told GM that it expects no interruptions in its supply of parts.
GM estimated that it pays a $2 billion premium to parts from Delphi, and with the bankruptcy, the automaker could cut or eliminate those costs as the parts supplier reorganizes its business.
Delphi’s parts shipments to its former owner GM are critical as the automaker prepares for the launch early next year of its full-size sport-utility vehicles.
Suppliers that have payments due from Delphi could only receive partial payment, but the company has some mechanisms to deal with troubled companies, Miller said.
"We have the capability of dealing with hardship cases. I don’t see any devastating impact on our supply base,” Miller said.
GM could also be liable for up to $10 billion to cover the costs of Delphi retiree pension, health care and benefits if the company went bankrupt, part of the agreement to spin off the parts supplier in 1999. Neither GM or Delphi have given estimates on GM's liability. “Potentially it could be a very large number, that’s why they keep talking to us," Miller said.
The bankruptcy will make Delphi shares practically worthless. Delphi shares plunged 49 percent to close at an all-time low of $1.12 on Friday on the New York Stock Exchange.
Miller said the company had been engaged in “constructive discussions” with its major unions, but was unable to modify its collective bargaining agreements without help from GM or court intervention. The complexity of the business and impending changes in bankruptcy laws on Oct. 17 forced the company to file for protection from creditors on Saturday.
“There was just too much on our plate for the time available,” he said. "This is a very complex subject because you’re talking about thousands of lives."
Delphi, which makes hundreds of automotive components from batteries and air bags to XM satellite radio systems, is the state’s fourth-largest publicly traded company, only behind GM, Ford Motor Co. and Dow Chemical Co.
Miller said the company would make proposals to its unions this month to address ways to make labor costs competitive and to address its non-profitable operations.
Delphi’s restrictive union contracts could be forced open for renegotiation by a bankruptcy court judge. A judge could allow Delphi to close underperforming plants, lay off unneeded workers, and restructure its contracts with other companies, dealing a blow to the UAW and the companies that work with Delphi.
The UAW declined to comment on Delphi’s bankruptcy.
Delphi could follow the example of auto parts suppliers Intermet Corp. and Citation Corp., both of which cut their wages and benefits in bankruptcy court.
Delphi pays its U.S. hourly workers wages and benefits that an average of $65 an hour compared with an average of $24 to $25 at its competitors. Under part of the union contract commonly called the jobs bank, Delphi expected to spend $400 million on wages and benefits for 4,000 employees who get paid even when there is no work for them.
Visteon Corp. was in even worse shape than Delphi before it reached a life-saving agreement with its former owner, Ford Motor Co. Visteon transferred 23 plants and nonmanufacturing facilities, including 13 in Michigan, to Ford on Oct. 1. That made the auto-parts supplier more competitive by cutting the average hourly wage at Visteon’s plants and the number of its hourly employees covered by the United Auto Workers from 17,400 to 5,000.
Delphi suffered from many of the same problems as Visteon, and both needed to reorganize their business, said Tom Stallkamp, the former Vice Chairman of DaimlerChrysler AG. “They just had too many legacy plants, too many plants that were captive to just one customer,” he said.
Most at peril are the 11 troubled plants that are grouped together in Delphi’s Automotive Holdings Group, which collectively posted an operating loss of $527 million on sales of $1.7 billion through the first six months of this year.
“They are very much at risk,” Miller said. “That represents where a lot of our cost problems are resided.”
The 11 plants, including one in Michigan, make a wide variety of automotive parts — including batteries, filters, compressors and generators — that are considered low-tech and not difficult to make a profit from.
Most hard hit could be Dayton, Ohio, where four of the plants employing 5,700 workers are located.
Delphi is just the latest auto supplier to file Chapter 11. Collins & Aikman Corp., Tower Automotive, Oxford Automotive Inc., Intermet and Citation are some of the largest suppliers that have taken that path recently.
Six years ago, when GM spun off Delphi, executives were optimistic about the company’s future. Then-Chairman J.T. Battenberg III said when GM’s board of directors agreed to the spin-off in April 1999: “This will give us the opportunity to grow and enter the marketplace on an equal basis with all of our competition as an independent supplier.”
But Delphi has been almost constantly reorganizing since, closing plants, shedding thousands of jobs and losing money in three of the last six years.
Delphi has floundered as GM and Ford have lost U.S. market share and cut production of cars and trucks. Soaring health-care, energy and material costs have also hit Delphi, as well as continual pressure from the automakers to cut costs.
And it has wrestled with accounting problems. Last year, Delphi became the target of an investigation by the U.S. Securities and Exchange Commission into how the company accounted for $90 million in information-technology contracts, mostly via deals with the computer-services firm Electronic Data Systems Corp.
As part of its own investigation into its accounting, which revealed that Delphi overstated its profits and misrepresented how much cash it made from operations, the supplier forced out Chief Financial Officer Alan Dawes in March. Five other financial officers, including treasurer Pam Geller and chief accountant and controller Paul Free, were either forced out or left the company this year as a result of the accounting errors.
Delphi will finance its business while in bankruptcy with $4.5 billion in debt facilities and financing lines, allowing it to pay employee wages, salaries and benefits as well as its operating costs. The company has secured up to $2 billion in senior secured debtor-in-possession financing from a group of lenders led by JPMorgan Chase Bank and Citigroup Global Markets Inc.
Also on Saturday, Delphi named Robert J. Dellinger as executive vice president and chief financial officer, effective immediately. Dellinger, 45, most recently was the executive vice president and chief financial officer for Sprint Corp. He succeeds John D. Sheehan, who will continue as chief accounting officer and controller on an interim basis. Sheehan’s primary focus will be on leading Delphi's restructuring activities.
Delphi current management team will continue to lead the company. On Friday, the company increased the severance package, the amount paid to officials if they are laid off or fired, for 21 of its top executives. Delphi said its current severance package was not competitive, and it needs to encourage management to stick with the company.
On Tuesday, Delphi and its creditors will meet in New York bankruptcy court for the first time, beginning its massive reorganization.
10-10-05, 08:39 AM
#2
Lexus Champion
... now, who was it that claimed the economy's in excellent shape and we should just continue down the same path we've been taking? 
For GM this could go one of two ways, though. Either they will start sourcing parts from Chinese and South American suppliers and watch themselves drown even further in into their impending doom after billions spent on warranty and recall issues... or Denso could soon be getting a huge contract.
For GM this could go one of two ways, though. Either they will start sourcing parts from Chinese and South American suppliers and watch themselves drown even further in into their impending doom after billions spent on warranty and recall issues... or Denso could soon be getting a huge contract.
10-10-05, 07:41 PM
#3
Lexus Champion
Originally Posted by Leets
... now, who was it that claimed the economy's in excellent shape and we should just continue down the same path we've been taking?
For GM this could go one of two ways, though. Either they will start sourcing parts from Chinese and South American suppliers and watch themselves drown even further in into their impending doom after billions spent on warranty and recall issues... or Denso could soon be getting a huge contract.
For GM this could go one of two ways, though. Either they will start sourcing parts from Chinese and South American suppliers and watch themselves drown even further in into their impending doom after billions spent on warranty and recall issues... or Denso could soon be getting a huge contract.
10-10-05, 08:00 PM
#4
Guest
Posts: n/a
Originally Posted by Leets
... now, who was it that claimed the economy's in excellent shape and we should just continue down the same path we've been taking?
For GM this could go one of two ways, though. Either they will start sourcing parts from Chinese and South American suppliers and watch themselves drown even further in into their impending doom after billions spent on warranty and recall issues... or Denso could soon be getting a huge contract.
For GM this could go one of two ways, though. Either they will start sourcing parts from Chinese and South American suppliers and watch themselves drown even further in into their impending doom after billions spent on warranty and recall issues... or Denso could soon be getting a huge contract.
10-10-05, 09:55 PM
#5
Keeper of the light
iTrader: (17)
These companies have inside info on the changes in bankruptcy policy we don't know I guess. We just had the personal bankruptcy law get changed so noone can go all out anymore, IF that applies to business also like it does personal, it's plain to see why they decided to liquidate before the oct 17th deadline. Lot's of changes in the new bankrupcy laws. If anyone even thinks they need a fresh financial start and want to get out of debt, you have about 5 days left to do it.
After the 17th, you have to repay your debts, no matter how long it takes. Pretty good timing for Dephi to clear some overhead, don't ya think? While this was only an 11, the new laws will affect all versions of bankruptcy.
After the 17th, you have to repay your debts, no matter how long it takes. Pretty good timing for Dephi to clear some overhead, don't ya think? While this was only an 11, the new laws will affect all versions of bankruptcy.
10-11-05, 07:35 AM
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I give Delphi high marks for getting their act together for the bankruptcy filing. This is a business strategy. It may not make you feel touchy feely about big business but managements job is to try to do what is in the shareholders best interests. Would GM let Delphi go? In a heartbeat. This is a global economy and if GM has its act together, they would have some challenges but they could obviously source anything they get from Delphi from alternate suppliers. Unfortunately for GM,the original agreements that were put in place when they spun of Delphi specify that GM has the liability if Delphi were unable to meet the commitments, like the UAW obligations.
There is starting to be talk about GMs bankruptcy. The public odds are about 30% for a GM bankruptcy, inside puts it at about 50%. When people discuss GMs strength for avoiding bankruptcy no one is talking about their car business, their Lutz genius, their offshore divisions, or much of anything auto related. The two reasons given are the large stash of cash GM has and GMACs ability to tap financial markets. Now if GM management burns through that pile of cash and turns over their pension obligation to you and I through PBGC, somebody should go to jail. I am not going to buy a GM car to contribute $1500 to UAW health benefits, getting my tax dollars to do it is criminal. Have to wait to see what happens but personally I think the changes in the bankruptcy laws did not go far enough. We have companies who should be going under that are able to become the undead and long term liability rather than starting over. Tragic.
There is starting to be talk about GMs bankruptcy. The public odds are about 30% for a GM bankruptcy, inside puts it at about 50%. When people discuss GMs strength for avoiding bankruptcy no one is talking about their car business, their Lutz genius, their offshore divisions, or much of anything auto related. The two reasons given are the large stash of cash GM has and GMACs ability to tap financial markets. Now if GM management burns through that pile of cash and turns over their pension obligation to you and I through PBGC, somebody should go to jail. I am not going to buy a GM car to contribute $1500 to UAW health benefits, getting my tax dollars to do it is criminal. Have to wait to see what happens but personally I think the changes in the bankruptcy laws did not go far enough. We have companies who should be going under that are able to become the undead and long term liability rather than starting over. Tragic.
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