GM Caught in Delphi Crossfire
The dark hole threatening to engulf General Motors Corp. deepened Wednesday as its largest parts supplier inched closer to a debilitating strike and the automaker’s stock and many of its bonds fell.
Investors were responding to worries about a possible strike at parts maker Delphi Corp. and to GM’s disclosures late Tuesday of new federal subpoenas for its financial records and the potential loss of an untapped credit line.
Labor problems intensified Wednesday as United Auto Workers union members reacted angrily to a wage cut offer the day before from Delphi, which was spun off from GM in 1999.
Delphi, which filed for Chapter 11 bankruptcy protection in October, seeks to slash hourly wages by 39% in two steps in the next 18 months, contingent on GM’s helping to pay some of the costs. The wage cut plan would have “devastating impact” on workers, said Richard Shoemaker, the UAW vice president in charge of bargaining with Delphi.
Delphi Chief Executive Steve Miller has said that if the company can’t win union agreement today it will go to U.S. Bankruptcy Court as early as Friday for permission to void its union contracts. That could trigger a Delphi strike this summer that could shut GM’s U.S. production for lack of crucial parts.
Some analysts, though, believe that the probability of a strike remains low.
“The UAW always negotiates in the press,” said David Healy, an auto industry analyst at Burnham Securities. “There still is a lot of time to talk, and none of them want a strike.”
A lengthy walkout at Delphi would cost GM about $5 billion a month in lost sales and wages paid to idled workers, according to various estimates. If GM was forced to close its factories, the automaker could be pushed closer to a bankruptcy filing of its own, analysts say.
GM’s sales in the U.S. have been sliding for decades in the face of intense competition from foreign automakers led by Toyota Motor Corp. of Japan. After losing $10.6 billion last year, GM is shutting plants and laying off workers, but its turnaround plan depends heavily on continued production and sales this year of a redesigned line of large sport utility vehicles and pickup trucks.
UAW spokesman Roger Kerson said Wednesday that there was no vote on Delphi’s offer but that “the sentiments ... from local officials are a good indication” of the sour mood.
Delphi wants to pay its union workers a one-time $50,000 cash settlement to accept a wage cut in July to an average of $22 an hour, down from $27.50; a second cut, to $16.50 an hour, would follow in September 2007.
The proposal also would institute a two-tier pay plan under which newly hired Delphi workers would start at as little as $10.50 an hour.
The idea of reaching an agreement this week is “ludicrous,” wrote Henry Reichard, a negotiator for Delphi’s second-largest union, the International Union of Electronic Workers-Communications Workers of America, in a letter to the company.
In a flier distributed to Delphi workers at a plant in Kokomo, Ind., Shop Chairman George Anthony of UAW Local 292 said the offer insulted union members.
“There is no way our leadership will bring this to the membership,” Anthony wrote.
Still, GM and Delphi have some breathing room. It would be early April before the Bankruptcy Court could hear Delphi’s motion to void its union contracts, and it may be weeks or months more before the judge issues a ruling.
The unions have threatened to strike if the court approved Delphi’s request.
“This isn’t anything that would happen in the immediate future,” said Newport Beach bankruptcy attorney Marc Winthrop.
As GM addresses Delphi’s problems, it has been selling assets, busily restating financial reports and digging up paperwork for federal regulators.
In Tokyo today, Isuzu Motors Ltd. said GM was studying a possible sale of its 7.9% stake in the Japanese truck maker. A sale by GM, which confirmed it was in discussions, would follow its decision this month to sell most of its stake in another Japanese automaker, Suzuki Motor Corp.
The Securities and Exchange Commission has been probing GM’s accounting practices in matters as diverse as its pension plan and its dealings in precious metals used on the assembly line.
GM disclosed the new subpoenas for records of a precious-metals deal and its treatment of credits from parts suppliers in its delayed annual financial report filed Tuesday.
The automaker -- which has restated its financial results back to 2000 because of accounting errors -- cautioned in that report that the restatements could impair its ability to draw on an untapped $5.6-billion line of credit. That contributed to Wednesday’s drop in GM’s stock and bonds, although the company said it had no immediate need for the credit line.
GM’s shares fell 60 cents, or 2.6%, to $22.15. Many of the company’s bonds also declined. One issue maturing in 2021 fell to $71.85 per $100 face value, down from $75.88 on Tuesday, according to Bloomberg News.
But George Magliano, head of the U.S. automotive practice at Global Insight consulting in Lexington, Mass., said investors had overreacted to GM’s filing.
“The news is actually a little better this week,” he said, because GM is “putting all this behind them.”