Socialist ViewPoint and analysis for working people

January/February • Vol 6, No. 1 •

G.M. Temporarily Waives Cuts in Prices It Pays Delphi

By Micheline Maynard

General Motors said on Monday [November 28)] that it would give the Delphi Corporation some temporary financial assistance while talks continued on a rescue plan. And Delphi said it was giving the United Automobile Workers union more time to negotiate before the company files a motion in bankruptcy court asking for permission to terminate its labor agreements.

The developments are welcome, the union said on Monday, but it called on Delphi to drop its demand for steep cuts in wages and benefits. Otherwise, it warned, there could be a showdown—exactly what investors fear.

G.M. spun off Delphi six years ago, but thousands of Delphi workers still have the right to return to G.M. if jobs are available. That is an unlikely prospect, given that G.M. said last week that it would close all or part of 12 plants and eliminate 30,000 hourly jobs over three years.

G.M. estimates that it faces a potential burden of up to $11 billion for its former workers’ pensions and retirement health care costs and other obligations. Delphi filed for bankruptcy protection last month after it failed to agree with G.M. on a restructuring plan that reportedly would have called for the auto company to pay Delphi $6 billion.

Talks have continued since then, and on Monday, Delphi said the pace had accelerated. Any deal could include details on which Delphi plants may close, along with incentives for workers to retire rather than return to G.M. In an interview this month, the chief executive of Delphi, Robert S. Miller, said his company could not afford to buy out workers without help from G.M. “We don’t have the cash to do that,” Mr. Miller said, “but it’s possible in the final resolution to find someone who does have the money”—namely, G.M.

Delphi does roughly half its business with its former parent, or about $15.4 billion a year. G.M. has complained that it pays a premium of $2 billion a year to Delphi because of high costs for labor and other expenses that the parts maker hopes to reduce in bankruptcy.

Before the 2006 model year began in October, G.M. won unspecified price cuts from Delphi and other parts makers. But on Monday, G.M. agreed to waive those cuts temporarily, and said the waiver would continue while Delphi negotiated with its union. A Delphi spokeswoman, Claudia Piccinin, declined to put a dollar figure on the waiver and said there was no deadline in its talks with G.M.

G.M.’s gesture could, however, conceivably provide Delphi with millions of dollars a day in cash. G.M. had originally sought cuts of 20 percent from its suppliers, pulling back on the demand after suppliers resisted. It still obtained price cuts product by product, however. At Delphi, a 20 percent cut would have amounted to $3 billion a year, or roughly $8.2 million a day. For his part, Mr. Miller has proposed cutting hourly wages from about $27.50 an hour to $12.50 an hour.

Leaders of Delphi’s six unions, including the U.A.W., have denounced that. Mr. Miller has warned that unless its unions agree, Delphi will file a motion in bankruptcy court on Dec. 16, seeking permission to set aside its contracts and impose the cuts. Delphi said on Monday that it would file the motion no sooner than Jan. 20, allowing time for a deal with G.M.

The push for sharply lower compensation has ignited fears among investors and analysts that unions would strike Delphi if a judge grants its request, bringing G.M. production to a halt as supplies of Delphi-made parts dry up. In recent weeks, shares of G.M. have hit lows for the year and then recovered a little despite G.M.’s plans to close all or part of 12 factories in the United States and Canada.

G.M. rose 36 cents, to $23.22 a share, in trading on Monday. In a statement, the president of the U.A.W., Ron Gettelfinger, and its vice president, Richard Shoemaker, said the developments with G.M. were “a positive sign.” However, they said Delphi’s latest proposal was “not a framework for an agreement, but a road map for confrontation.” The leaders added, “If Delphi is serious about restarting discussions, taking that insulting proposal off the table would be a good place to start.”

The New York Times, November 29, 2005

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