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Delphi demand: Brutal cuts
11th-hour offer calls for historic givebacks from 24,000 UAW workers
Workers leave the Delphi plant in Flint on Thursday. The parts supplier, with 185,000 employees worldwide, posted a net loss of $741 million in the first six months of this year. The union says Delphi could file for bankruptcy as soon as today.
Brutal cuts
UAW hourly workers: You knew that Delphi proposals to cut wages and benefits were in the works, but do the details come as a surprise?
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Delphi Corp. has demanded that its 24,000 UAW workers accept unprecedented cuts in wages and benefits as part of a last-ditch effort to avoid bankruptcy, according to a UAW memo.
The bombshell proposal came as union officials contend that General Motors Corp. has suspended negotiations with the Troy-based auto parts giant on a multibillion-dollar bailout.
A confidential "update" to UAW members from the union's International Bargaining Team on Thursday said Delphi could file for Chapter 11 bankruptcy as soon as today.
"It is clear that in one form or another, there is a restructuring of Delphi forthcoming and it will have a dramatic impact on UAW members," said the memo obtained by The Detroit News.
Delphi's demands to the union are far beyond anything ever asked from the UAW and would represent a historic unraveling of pay and benefits negotiated over many decades.
The proposal, which reverberated Thursday from factory floors to Wall Street, calls for wages to be slashed 60 percent to as low as $10 an hour; the elimination of the jobs bank that guarantees pay and benefits for laid-off workers; a reduction in health care and pension benefits; and the right to close, sell or consolidate the majority of Delphi's UAW-organized factories over the next three years.
"With that package, the UAW member would not be able to afford a vehicle that our products are assembled into," the memo said.
But even those dramatic measures wouldn't keep Delphi out of bankruptcy in the absence of financial aid from GM, according to the union.
"Delphi representatives have clearly stated that regardless of what the UAW agrees to, GM must provide billions of dollars in financial support or Delphi will be forced to file Chapter 11," the memo said.
The UAW has not agreed to Delphi's proposal and may not have time to poll its membership before a bankruptcy filing.
Without a deal from both the UAW and GM, Delphi Chairman Robert S. "Steve" Miller has said he will file for bankruptcy before an overhaul of the federal law takes effect Oct. 18.
It would be the largest industrial bankruptcy in U.S. history, and the impact would be felt from GM, Delphi's biggest customer, to the hundreds of suppliers and the communities that rely on Delphi.
There was no official comment Thursday from Delphi, the UAW or GM as the clock ticks down on a possible Chapter 11 filing. On Wall Street, analysts and investors were increasingly skeptical that an eleventh-hour deal was at hand.
"It's becoming clearer in our view that a deal is less and less likely," said Brad Rubin, an analyst with BNP Paribas in New York.
Miller, a veteran of bankruptcies at auto supplier Federal-Mogul Corp. and Bethlehem Steel, has been unavailable for comment since telling The News on Sept. 27 that Delphi cannot operate any longer with UAW-level wages and benefits.
"I certainly hope I don't file, but if we do we'll be filing because we have a UAW level of labor cost structures in our U.S. plants," Miller said.
Spun off as a separate company from GM in 1999, Delphi pays its UAW hourly workers wages comparable to unionized employees at GM assembly plants. Under the proposal Delphi made to the UAW, the firm wants to cut the wages of skilled-trades workers from a current average of $30.77 an hour to $19, and chop production wages from $26.35 an hour to $10-$12 an hour.
The company has also demanded that UAW workers downsize their health care plans to match the salaried employees' plan, and that pensions be modified to reflect lower wage rates, the union memo said.
Delphi workers were floored by the extent of the cutbacks that the parts maker wants.
"The first thing I thought was, I need to go look for another job," said Todd Jordan, a Delphi worker in Kokomo, Ind.
Another Kokomo plant worker, Jennifer Lewis, said the situation appears dire whether the UAW makes concessions or not.
"Truthfully, I think the UAW is going to give concessions, and then they're still going to turn around and file for bankruptcy." Lewis said. "I hope that GM steps up and helps. There are thousands of people praying that they do."
GM has given no indication of participating in a Delphi bailout estimated to cost as much as $6 billion. The automaker's board of directors met this week in Detroit, but no action on Delphi was announced.
"The UAW does not know if any decisions were made regarding Delphi's financial situation," the union memo said. "The speculation is that Delphi will file bankruptcy sometime during the period from Oct. 7 to Oct. 14 ... since there are no discussions being held between GM and Delphi."
But the union and others in the auto industry believe that GM would be responsible for billions of dollars in pensions and benefits costs for Delphi workers in the event of a Chapter 11 filing.
The rating agency Standard & Poor's said Thursday that Delphi has unfunded pension and other employee benefits liabilities totaling $14.5 billion. The agency lowered Delphi's credit rating -- already well below junk bond levels -- another two notches.
With the Oct. 17 deadline approaching, S&P credit analyst Martin King said a potential deal between the union, GM and Delphi appears "less likely because of the complexity of issues involved and the very limited time frame remaining to reach an agreement."
Delphi, which has annual sales of $28 billion and 185,000 employees worldwide, posted a net loss of $741 million in the first six months of this year. Miller joined Delphi in July and soon raised the prospect of a possible bankruptcy filing.
In recent weeks, Miller has assembled a legal team of inside executives and outside experts to advise him on a bankruptcy filing. Moreover, a team of consultants has camped out at Delphi headquarters in Troy this week to coach employees on how to conduct business in Chapter 11.
One rule, a Delphi employee said, was to avoid using the word "bankruptcy" in a conversation and, instead, substitute "Chapter 11" or "restructuring."
At the same time, Miller has tried to calm employee fears about a bankruptcy filing, if it proves necessary.
In a voicemail this week, Miller told white-collar employees to stay focused and do their jobs while the situation is being worked out. He also took a moment to personally reflect on his first 90 days on the job, saying "the time has flown by."
The message follows a similar voicemail last month in which Miller told employees that good companies such as Delphi can survive bankruptcy.
In addition to the bankruptcy question, Delphi also has been dogged by shareholder lawsuits alleging fraud in the way it accounted for certain transactions in recent years.
The Securities and Exchange Commission and the Justice Department are conducting probes into accounting errors at Delphi. Delphi has restated several years and admitted to overstating earnings by hundreds of millions of dollars. The accounting issues led to the resignation of CFO Alan Dawes and five other top executives earlier this year.
But the company's accounting troubles have taken a backseat to speculation over the outcome of Delphi's bailout talks with GM and the UAW.
The UAW memo, which was widely distributed to Delphi workers this week, offered the most insight into the talks in several days. It led JP Morgan analyst Himanshu Patel to the conclusion that "at least portions of the UAW have resigned themselves to major concessions, recognizing that bankruptcy is of greater risk to members than a negotiated settlement."
In a Thursday report, Patel predicted that "negotiations will go down to the wire" but that a deal will be reached outside of court.
Investors were less optimistic. Delphi shares fell 30 cents, or 12 percent, to close at $2.20 Thursday on the New York Stock Exchange, matching its all-time low.
Other auto suppliers are also bracing for the impact of a Delphi filing, with some worried about debts owed to them and others concerned more about the message it would send.
"None of us wants to see a supplier company go into bankruptcy, especially one as large as Delphi," said Lin Cummins, spokeswoman of Troy-based axle supplier ArvinMeritor. "It would reflect poorly on the entire industry."
But Delphi workers on the plant floor are the most anxious about a bankruptcy filing and what it might mean for them. Jennifer Lewis, with six years at the Kokomo plant, said if the union agrees to lower wages and benefits she will have to tighten spending at home. Even though she says her family would "probably be OK," she fears the long-term impact of a filing on the union, on her plant and on the U.S. auto industry.
"You want to hope that it's just a bluff to try to make the UAW afraid of what's going to happen. But in your heart and in the back of your mind, you know you're going to be in trouble," she said. "I mean, it's scary."
You can reach Brett Clanton at (313) 222-2612 or bclanton@detnews.com.
Delphi employees report to work Thursday at the Flint plant. Bankruptcy talk has put workers on edge. "It's scary," says an Indiana worker.
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