By: SupplierBusiness
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Delphi insiders say they strongly oppose a scenario by which General Motors would re-emerge as the supplier’s controlling shareholder if a US bankruptcy court allows GM to convert its debt holding into equity. The ironic shift could result if Judge Robert Drain allows it.
Delphi was set free from GM in 1999, and ever since has worked hard to reduce its reliance on the former parent. And the mere threat of GM control could undo much of Delphi’s success in convincing other automakers that it is truly an independent company. That has Delphi executives nervous.
But since GM is likely to spend as much as $6 billion buying out thousands of Delphi employees and picking up their health care costs, GM wants those costs classified as unsecured debt. The $6 billion would be on top of $1 billion in expenses GM chalked up when 7,000 Delphi workers returned to GM prior to the Chapter 11 filing last October.
All told, GM accountants say the Delphi bailout could cost the automaker up to $12 billion. But an equity holding would allow it to recover some of the costs. However if GM is left in command it would raise a host of operational issues.
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By GlobalDataGM executives pushing for the ownership stake say they don’t want to pull Delphi into a keiretsu-style relationship. And they don’t want to return to having to pay the higher component costs charged by a dependent supplier. Indeed, GM purchasing chief Bo Andersson has been working hard to shift Delphi contracts to other parts makers. But GM could have control of a far different Delphi that is expected to emerge from Chapter 11. And Delphi could underpin GM’s balance sheet if it as a leaner, profitable and more technologically-suited and geographically-spread supplier.
One Delphi executive chalked up the talk of GM taking control in a bargaining manoeuvre. Delphi has asked the Bankruptcy Court to cancel 5,472 unprofitable parts contracts with GM. The threat of GM control could cause Delphi to back off on that effort. Delphi executives desperately do not want to slip back under GM’s domain, fearing that it would chase off some of the non-GM business that it has painstakingly built up over the years.
Meanwhile, the growing consensus in Detroit is that the UAW won’t strike Delphi – a turn of events that would cripple GM and probably the entire US industry. Delphi’s UAW employees last week authorised a strike if the two sides cannot reach an agreement. UAW workers at 21 Delphi plants overwhelming voted to sanction a strike if Drain gives Delphi approval to terminate its labour contracts.
But several GM top executives, including CEO Rick Wagoner, and vice chairmen Robert Lutz and Fritz Henderson have said in recent days that they do not expect a strike. And they sound convincing. Each has said that they expect a compromise to unfold this summer under the auspices of Judge Drain. And Drain has shown every sign of waiting for the two sides to work out their differences over wages.
SupplierBusiness
