Tuesday, August 9, 2005

Delphi tells UAW to cut pay

Ailing auto supplier says it can't compete without givebacks before 2007 contract expires.

By Ed Garsten and Eric Mayne / The Detroit News

Error processing SSI file Error processing SSI file Suppliers fight for survival Auto parts suppliers Delphi and Visteon Corp. reported big second quarter losses, due to production cuts at GM and Ford, ongoing price pressures from automakers, rising health care and retiree benefits obligations and the high price of raw materials. Do you think they will will be able to overcome their problems without resorting to bankruptcy protection? Yes, both eventually will rebound Delphi will, Visteon won't Visteon will, Delphi won't Neither will make it Get results and comments Comment on this story Send this story to a friend Get Home Delivery

Ailing Delphi Corp., seeking to overhaul its unprofitable North American auto parts business, is pushing the United Auto Workers union to agree to slash hourly employee wages and benefits before its current labor contract expires in 2007.

Meanwhile, General Motors Corp., Delphi's former parent, disclosed Monday it is considering Delphi's request for financial help by an Oct. 17 deadline.

The developments come as Delphi and rival Visteon Corp. reported second-quarter losses Monday in part because of production cuts at GM and Ford Motor Co.

John Sheehan, Delphi's acting chief financial officer, said the company is seeking an agreement with the UAW that would make Delphi more competitive with rivals such as Johnson Controls Inc. and Dana Corp., which pay lower wages.

"It's a fair summary to say it's the crux of what we're trying to achieve," Sheehan said.

As part of its 1999 split from GM, Delphi is locked into the same contract covering pay, benefits and job and income security -- at an annual cost of nearly $130,000 per worker -- as the carmaker.

Other suppliers "do not have the same post-employment benefits, the same wage rates, don't have the same guaranteed employment, don't have the same prohibition from facilities closing," Sheehan said.

"There are all these things our supplier peers do not have and we have to pay for," Sheehan said.

The UAW declined to comment on the three-way talks with GM and Delphi.

In May 2004, Delphi won the right to pay new hourly workers a lower starting wage of $14 an hour, as well as offer reduced benefits. But production cuts at GM have slowed Delphi's efforts to hire employees at the lower wage. And as part of the separation agreement with GM, laid-off hourly Delphi workers can apply for open positions at GM. But the automaker is also downsizing and has not been able to accommodate many so-called "flowback" employees.

Delphi also wants relief from job and income security agreements with the union that require Delphi to pay an estimated 4,000 workers who remain idled. In the second quarter, those costs totaled more than $100 million.

"We can no longer afford to continue to pay all-in wage and benefit costs of approximately $130,000 per year per U.S. hourly worker," Delphi Chairman and CEO Robert S. "Steve" Miller said Monday.

Starting pay under the supplemental agreement is $14 an hour for all new Delphi hires. The hourly pay rate grows to $18.50, $16.50 or $14.50, depending on the work performed. At major Detroit automakers, the hourly rate for an assembler is $25.57; a janitor starts at $24.98, and tool and die workers start at $30 an hour.

The company also has $14.5 billion in underfunded pension and other retiree benefit obligations.

Miller said no deadline has been set to come to an agreement with the union and GM but "... we can't wait for 2007 to resolve our issues. We're going to have to deal with them this year."

In GM's filing with the U.S. Securities and Exchange Commission, the automaker said Delphi has indicated "if it is not successful in achieving a restructuring by Oct. 17, 2005, it would consider other strategic alternatives." GM said it is "considering Delphi's request in order to determine what participation, if any, would be in the best interests of GM and its stockholders."

Miller, who became chairman and CEO on July 1, has warned repeatedly that Delphi could file for bankruptcy protection if an agreement is not reached with GM and the UAW, which represents 25,000 Delphi workers.

"Certainly with their current revenue and cost structure, the company is not viable in the long term," Fitch Ratings analyst Mark Oline said.

Delphi is trying to reduce 8,500 hourly jobs globally this year, but the cuts have come slow in the United States. Through the second quarter the company has cut 3,600 jobs, including 1,400 in the United States. Because of tepid response to early retirement offers, Sheehan said the head count reduction would be concentrated more overseas than first anticipated.

Delphi and other suppliers have been hit hard by production cuts at Detroit automakers, ongoing price cuts demanded by automakers, rising health care and retiree benefits obligations and the high price of raw materials.

At Visteon and Delphi, revenues have taken a hit as GM and Ford reduce output to counter falling sales.

Delphi lost $338 million, or 60 cents a share, in the April-June period. Excluding the effects of $49 million in restructuring costs, the company lost $289 million, or 52 cents a share. Revenues dropped to $7 billion from $7.5 billion.

During the 2004 second quarter, Delphi earned $143 million, or 25 cents a share, on revenues of $7.5 billion.

Visteon lost $1.19 billion, including a $1.1 billion noncash write-off related to a Ford-backed restructuring plan.

A year ago, Visteon reported a $31 million profit. Sales rose 3 percent to $5 billion from $4.87 billion last year.

The company also warned its latest results could change, pending the conclusion of an internal audit.

"(Visteon) appears on track," J.P. Morgan analyst Himanshu Patel wrote in a research note. "We see the potential for long-term restructuring, particularly given recent management changes."

As a result of the restructuring, expected to conclude Sept. 30, Visteon will transfer control of 24 North American plants to a separate entity managed by Ford Motor Co., the supplier's former corporate parent and largest customer.

Visteon Chairman and CEO Mike Johnston said the company continues to downsize, with a primary focus on its overseas operations.

"We do have a number of operations spread around the world that are underperforming," Johnston said. "In some cases, we may be looking at moving production to a more competitive part of the world. In some cases, it would mean that we'll be closing some facilities. ... You'll start to see some action pretty soon."

The nation's second-largest automotive supplier, which is already struggling to stave off pricing pressures and outbid low-wage competitors, is working to reduce its reliance on Ford by pursuing more contracts with other automakers. Visteon's second-quarter non-Ford sales reached a record $1.8 billion, an increase of 29 percent over the same period last year.

Visteon shares soared 16 percent, or $1.34, to $9.85 during Monday's trading session on the New York Stock Exchange. Delphi shares inched up 7 cents a share, or 1.41 percent, to $5.03.

You can reach Ed Garsten at (313) 223-3217 or egarsten@detnews.com.