Delphi Buyout Deal Is Reached
General Motors Corp., its main parts supplier and their largest union announced a breakthrough employee buyout deal Friday that would give the automaker a crucial boost as it works to cut costs and fend off a potentially debilitating shutdown.
The plan for employees of parts maker Delphi Corp. who belong to the United Auto Workers union could ultimately relieve GM of the obligation to shoulder billions of dollars of Delphi’s future healthcare and pension costs.
In a flurry of trading after the late-afternoon announcement, GM shares jumped 52 cents, or 2%, to $25.35.
Delphi is a former GM subsidiary operating under Chapter 11 bankruptcy protection. When GM spun off Delphi, it agreed to cover the parts maker’s pensions and retiree healthcare costs if Delphi could not. The automaker has pegged its potential obligation to Delphi workers at $5.5 billion or more.
Much of that would evaporate if most of the 22,000 UAW members employed at Delphi and eligible for a buyout or early retirement took the offer.
Negotiations to extend the same offer to 9,000 employees who belong to the steel and electrical workers’ unions are continuing, Delphi spokeswoman Claudia Piccinin said.
Delphi plans to close 21 of its 29 U.S. factories, which would trim its union workforce in this country to about 8,000.
“This was anticipated, but it is a whiff of good news” in the continuing Delphi-GM-UAW saga, said Burnham Securities auto industry analyst David Healy.
The buyout plan, which must be approved by the federal bankruptcy judge overseeing Delphi’s reorganization effort, also would represent welcome progress in difficult negotiations over the company’s efforts to win court permission to void its union contracts and slash hourly wages to as low as $12.50 an hour from a current average of $28.
The parts maker’s unions have threatened to strike if Delphi wins court approval of the wage cut plan.
GM is attempting to mediate talks between Delphi and the unions -- the UAW is by far the largest -- because a strike against Delphi would quickly dry up the flow of crucial parts to GM’s U.S. assembly plants. That, in turn, could cause the automaker to begin shutting down production.
A lengthy strike could cost GM billions of dollars in lost sales and in continuing pay to idled workers. Some analysts believe that the company, already losing money on its North American auto operations, could be forced into bankruptcy proceedings itself if that happened.
“We see this as an important step toward reaching an agreement” on pay cuts and other issues between Delphi and its unions, GM spokeswoman Gina Proia said of the buyout plan.
U.S. Bankruptcy Court Judge Robert Drain on Friday postponed further hearings on Delphi’s motions in his New York courtroom until Aug. 11 to give the parties more time to reach a settlement.
But Delphi intends to continue pushing for new union contracts that slash wages, spokeswoman Piccinin said. No matter how many workers take the buyout and leave, “we will still need competitive labor agreements.”
The buyout plan announced Friday would extend an earlier offer by Delphi to pay its most senior workers, those with at least 27 years of service, $35,000 to take early retirement with full benefits.
About 13,000 of 31,000 union workers at Delphi plants in the U.S. were eligible, and early reports are that as many as 10,000 have applied.
Now, if the court approves, Delphi would offer a separate early-retirement bonus to workers with 26 to 27 years of seniority and pay any of its 22,000 employees who are UAW members a lump sum to quit and forgo future healthcare benefits.
Employees with less than 10 years’ seniority would receive $70,000, the company said, and those with 10 years or more would receive $140,000.
Workers who took the buyout would retain any pension benefits already earned.
GM in March offered the same early-retirement incentives and buyout payments to 113,000 of its UAW-member employees. Reports from union insiders are that nearly 20,000 have accepted.
Chairman and Chief Executive Rick Wagoner said at the auto company’s annual meeting Tuesday that he expected that the total would approach 30,000 by the offer’s June 23 deadline.
Wagoner also said he hoped the three-way talks on Delphi pay-cut issues would be successfully concluded by early September.
