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Delphi Asks Judge to Void Labor Pacts

The UAW has vowed to strike if the auto parts maker succeeds in canceling the contracts. A walkout could force GM into Chapter 11.

April 01, 2006|John O'Dell | Times Staff Writer

Troubled auto parts maker Delphi Corp. asked a bankruptcy judge Friday to void its union contracts so it could slash hourly wages as part of a sweeping reorganization plan that would eliminate two-thirds of its U.S. factories and cut 8,500 salaried jobs worldwide.

Delphi also asked the judge to cancel hundreds of unprofitable contracts with General Motors Corp., its biggest customer and former owner.

Several analysts and bankruptcy specialists likened the parts maker's maneuvers to the start of a high-stakes game of chicken -- with Delphi's recovery and GM's future at stake.

"Now the clock is ticking," said Sean Egan, auto industry analyst at Egan-Jones Ratings in Philadelphia. Delphi Chief Executive Steve Miller "is doing exactly what he needs to do" in forcing the issue by asking the Bankruptcy Court to step in.

Hearings on Delphi's motions are scheduled for May 9 in U.S. Bankruptcy Court in New York. The judge has as long as 30 days from the end of the hearings to rule.

"The timing gives both parties plenty of time to negotiate, and there will be a lot of brinkmanship going on," said New York bankruptcy attorney Jay Waks.

Delphi will continue negotiating with its unions and GM, but Miller insisted that the parts maker could not afford its current wage and pension costs or to continue supplying GM under contracts that force it to "sell products at a loss."

Delphi has proposed slashing hourly wages by 40%, freezing its pension plan and closing unprofitable plants as part of its plan to emerge from bankruptcy.

United Auto Workers President Ronald Gettelfinger called Delphi's motion a "misuse of bankruptcy procedure to circumvent the collective-bargaining process."

Analysts said Delphi's longexpected action could eventually trigger a strike that could force GM itself to file for bankruptcy.

The automaker, which lost $10.6 billion last year and is suffering from a decades-long sales slump, depends on the electronic components, interiors, steering and brake systems and other crucial parts Delphi provides.

The UAW has pledged to strike Delphi plants if its contracts are thrown out. If that happened, GM in turn would be forced to shut assembly lines within 48 hours, said Sean McAlinden, an analyst with the Center for Automotive Research in Ann Arbor, Mich.

GM's own union contracts, however, require it to keep paying idled workers. A Delphi strike would cost the automaker as much as $5 billion a month, quickly eating through its estimated $19 billion in cash, analysts said. Some analysts predict that a Delphi strike would force GM to file for bankruptcy protection within a month.

The automaker expressed disappointment with Delphi's legal maneuver regarding contracts but said that motions "are fairly common" in bankruptcy proceedings. GM Chief Executive Rick Wagoner said the automaker "expects Delphi to honor its public commitments to avoid any disruption to GM operations."

GM shares rose 21 cents Friday to $21.27.

Several bankruptcy specialists said Delphi's negotiations were likely to resume soon because its unions wouldn't want to chance an unfavorable court ruling. One reason is that it's not unusual for a bankruptcy judge to cancel union contracts if negotiations reach a stalemate.

The pressure of a looming deadline for a court decision "sometimes facilitates negotiations," said Sharon Levine, a bankruptcy attorney at Lowenstein Sandler in Roseland, N.J., who specializes in representing unions.

A big issue for Delphi's unions is that the parts maker wants its hourly workers to accept a pay cut to $16.50 an hour next year from the present average of $27. The company also wants to close or sell 21 of its 29 American plants.

In the U.S., Delphi has 14,300 salaried and 32,000 hourly workers. Many of those jobs would be lopped from its payroll as plants were sold or closed under the reorganization. Delphi's more than 100 plants and nearly 140,000 employees outside the U.S. are not involved in the bankruptcy.

Also Friday, a federal judge approved a settlement requiring union retirees of GM to pay more for their healthcare, dismissing the objections of a group of retirees who said the settlement worked out by the automaker and the UAW violated their contracts.

Hourly workers approved the settlement in November with 61% of the vote, but GM needed court approval to go forward with the plan because it involves retirees, who did not get to vote.

Times wire services were used in compiling this report.

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