The event many motor industry analysts and observers had been predicting for months - especially after a key debt repayment opportunity was missed last week - finally happened on Saturday when giant components maker Delphi Corp. declared 'Chapter 11' bankruptcy.

Here in the UK, the company would, as MG Rover did last April - have called in administrators, usually one of the giant international accounting firms, who would have held discussions with workers and made whatever immediate layoffs were necessary, called a creditors' meeting and started attempts to either sell the company as a going concern, break it up into smaller units, or simply sell of the assets, with the prime goal of maximising the pay-out to creditors.

However, US bankruptcy law contains the 'Chapter 11 protection' provision, which allows the company to continue operating while it restructures and refinances, with protection from the creditors baying at its door, subject to court oversight.

Several major US airlines are 'operating under Chapter 11' (at least one has been in and out of this procedure before) and the provision has been criticised by some analysts for allowing badly-run companies to continue going at the creditors' and taxpayers' expense. Changes to both company and personal bankruptcy laws come into effect on October 17 and these are expected to make declaring bankruptcy more difficult.

In a statement on Saturday, Delphi said it had filed for Chapter 11 protection to "preserve the value of the company and complete its transformation plan designed to resolve… existing legacy issues and the resulting high cost of US operations". Delphi and 38 of its domestic US subsidiaries are affected.

The company stressed its non-US subsidiaries were not included in the filing and will continue business as usual.

"Delphi's global management team will continue to manage both the US and global businesses [and the company] expects to complete its US-based restructuring and emerge from chapter 11 business reorganisation in early to mid-2007," the statement added.

"Our global operations, both US and non-US, will continue without interruption," the statement quoted Delphi chairman and CEO Steve Miller as saying. "Our customers all over the world can be assured that we will continue to meet their scheduling, delivery and production needs in a timely manner."

Delphi plans to finance its global operations with $US4.5 billion of debt, including $US2.5 billion borrowed from pre-[Chapter 11] petition revolving and term loan facilities and a commitment for up to $2 billion in senior secured debtor-in-possession (DIP) financing from a group of lenders led by JPMorgan Chase Bank and Citigroup Global Markets.

The company plans to obtain approval of an adequate protection package for the benefit of its pre-petition lenders.

Delphi said the DIP financing together with cash generated from daily operations and cash on hand would be used to fund post-petition operating expenses, including payments to suppliers and wages, salaries and benefits.

"The overall liquidity available to Delphi (including more than $1 billion on hand outside the US, which [the company] does not plan to repatriate to fund US operations) will support its global operations outside the US and help ensure the continued adequacy of working capital throughout its global business units," the statement said.

"We took this action because we are determined to achieve competitiveness for Delphi's core US operations, and the key to accomplishing that goal is reducing these costs as soon as possible," Miller said in the statement."

We simply cannot afford to continue to be encumbered by high legacy issues and burdensome restrictions under current labour agreements that impair our ability to compete."

He added that Delphi would "realign" its product range and manufacturing facilities to "preserve our core businesses".

Translation: A large chunk of US manufacturing operations will be sold, merged into other Delphi operations or simply shut down during the Chapter 11 restructure.

"We believe the chapter 11 process will provide the flexibility to address our legacy issues and allow us to take advantage of the fundamental strength of our businesses," Miller added.

Miller said that Delphi had had "constructive discussions" with its workers' unions, but was unable to get the deals its needed (significant wage and benefit cuts) without help from General Motors or resorting to court proceedings.

"Having been unable to resolve our US legacy issues out of court," Miller said, "we determined it was in Delphi's best interest to address the US cost-structure issues through the chapter 11 process now while our liquidity position is strong.

"We will be making a further proposal this month to each of our unions to transform our labour agreements to a competitive labour cost structure and to address non-profitable and non-strategic US operations.

"In addition, we expect to address pension plans and health and retiree benefits to align them with competitive benchmarks in the industry and our transformation plan."

Delphi added that its non-US subsidiaries are "generally competitive, cash flow positive and experiencing high growth opportunities".

"One of our primary goals is to preserve and continue the strategic growth in non-US operations while we address our US cost structure issues through the chapter 11 process," added Miller.

In a statement issued on Saturday night, General Motors said it expected no immediate effect on its global automotive operations as a result of Delphi's Chapter 11 filing and would "work constructively" with the components maker "to pursue outcomes that are in the best interests of GM and its stockholders, and that enable Delphi to continue as an important supplier to GM".

The United Auto Workers Union was blunt in its response which criticised severance packages for senior Delphi executives. In a joint statement, president Ron Gettelfinger and vice president Richard Shoemaker said: "The UAW is deeply disappointed by the decision by the [Delphi board to] file for bankruptcy.

"Delphi's decision is obviously an extremely bitter pill for the 25,000 Delphi workers represented by the UAW as well as for the thousands of workers represented by other unions and non-union salaried Delphi employees - all of whom have worked hard to try to make Delphi's U.S. operations successful.

"The UAW is committed to doing everything we possibly can to protect the interests of our active and retired members and their families. Unfortunately, this is not the first time that the UAW has had to deal with a court-ordered corporate restructuring, and we will vigorously use our experience, expertise and resources to represent the interests of UAW-Delphi workers and retirees throughout this process.

"Over the past several months, the UAW has engaged in discussions with Delphi to craft a mutually agreeable approach to the company's financial problems that would have enabled Delphi to avoid filing for bankruptcy. We made it clear to Delphi that we were willing to continue discussions and to consider a wide range of options. However, from the outset of talks about a possible bankruptcy filing, Delphi made it clear that the UAW alone could not solve the company's problems.

"Delphi's decision would be extremely disappointing under any circumstances, but it is all the more so in light of the company's announcement on Friday - just one day before filing bankruptcy - that it had sweetened the severance packages for Delph's 21 most highly compensated executives because the old severance package was - as a Delphi spokesperson put it - 'uncompetitive.'

"Once again, we see the disgusting spectacle of the people at the top taking care of themselves at the same time they are demanding extraordinary sacrifices from their hourly workers, engineers, administrative and support staff, mid-level managers and others. All of them deserved better from Delphi's senior executive leadership."

Graeme Roberts

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