Delphi extends labour contracts after GM

11/28/2005

All Financial Times News

Delphi, the ailing automotive parts maker, has backed away from a threat to tear up its labour contracts after being thrown a financial lifeline by General Motors, its biggest customer.

Delphi, which is operating under Chapter 11 bankruptcy protection, said on Monday that it would extend until at least January 20 its deadline for sweeping concessions from six unions representing its 33,000 blue-collar workers in the US.

Management had previously insisted that agreements with the unions would have to be finalised by December 16. The company has demanded, among other concessions, a two-thirds cut in wages and benefits, as well as an end to a “jobs bank”, under which 2,500 laid-off workers continue to receive pay and benefits.

GM has agreed to provide “interim financial support” in the form of a reversal of previously agreed price reductions on components supplied by Delphi.

Officials at both companies declined to disclose the extent of the relief. According to court documents, GM paid $15.4bn for parts from Delphi in 2004, making up about half of the parts maker’s revenues.

If the cost reductions are in line with the industry norm of 3 per cent a year, GM would be sacrificing about $460m.

Brian Johnson, analyst at Sanford Bernstein, said that an extended strike at Delphi is the chief near-term risk to GM’s stability. The parts maker’s willingness to delay imposing a new labour contract “defuses the strike risk for at least another month or so”, Mr Johnson said.

Shortly after Delphi filed for bankruptcy protection last month, its chief executive Steve Miller said that the company would not use the threat of supply disruptions to blackmail carmakers into paying higher prices for parts.

But a Delphi spokeswoman said on Monday that “we’ve made progress on one front, so now we’re allowing ourselves more time to reach an agreement with the unions”.

Delphi’s unions have responded angrily to the demands for concessions, contrasting them with a $488m severance and bonus package offered to hundreds of senior executives.

Mr Miller has defended his approach on the grounds that Delphi’s blue-collar workers are over-paid by industry standards, while incentives are essential to retain the services of managers who may be asked to work themselves out of jobs as part of the restructuring.

Delphi last week delayed its request to the bankruptcy court to approve the executive compensation plan. The hearing, originally scheduled for today, is now set for Jan 5. Several creditors have also expressed misgivings about the compensation plan.

Delphi said on Monday that “it was continuing to work to achieve consensual agreements with the unions”.