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November 10, 2005

UK/USA: Delphi strike threat hits GM share price

The threat of strike action by workers at parts maker Delphi has increased pressure on the financial stability of General Motors, according to The Times newspaper.

The threat of strike action by workers at parts maker Delphi has increased pressure on the financial stability of General Motors , according to The Times newspaper.

The report said shares in GM hit a 13-year low on Wedneday, closing down 1.23 cents at $24.63, as analysts raised concerns about the possibility of strike action at Delphi , which is GM’s biggest supplier of parts. Delphi is currently operating under Chapter 11 bankruptcy protection rules.

“Equity and debt markets have become increasingly concerned about GM’s vulnerability to potential supply disruptions at Delphi ,” Rod Lache, a Deutsche Bank analyst, told The Times .

The paper noted that Delphi workers have warned management that any attempt to break current pay and  benefits packages would be met with industrial action – Lache reportedly believes that a strike at Delphi lasting three months could cost GM US$13 billion (GBP7.5 billion).

The Times said the threat of a strike was enough to force investors and creditors to re-evaluate GM – the slump in the share price was compounded by a decision by Fitch, the ratings agency, to lower the company’s debt rating by two notches from BB to B+, pushing the debt further into junk territory.

Standard & Poor’s, a rival ratings agency, reportedly said that it also believed the threat of a strike at Delphi was concerning for holders of GM bonds.

Bob Schulz, an analyst for S&P who covers GM, told The Times that he did not expect to change GM’s current debt rating until the middle of January. He said: “But Delphi going on strike would have an effect on GM and may prompt an earlier look than mid-January.”

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