At a glance:

  • “Dual track” bankruptcy court process beginning on Friday to reject collective bargaining agreements and certain unprofitable General Motors contracts
  • Exiting brake & chassis systems, catalysts, cockpits and instrument panels, door modules and latches, ride dynamics, steering and wheel bearings businesses
  • Up to 40% of current corporate officer positions will ultimately be eliminated
  • Strategic path planned to 2007 emergence from Chapter 11
  • Continued negotiations with US unions and General Motors to agree on a competitive US labour cost structure
  • Delphi will retain and grow core business product lines and reduce number of manufacturing plants; non-core businesses to be sold or wound-down by 2008
  • Global salaried workforce to be reduced by 25%
  • Hourly and salaried US benefit pension plans to be retained but frozen by end of 2006; Delphi to implement competitive benefits packages for workforce and seek pension funding solution

Delphi has outlined a plan to restructure and bring the company and 41 US domestic subsidiaries out of ‘Chapter 11’ bankruptcy protection in the first half of 2007. The United Auto Workers (UAW) union response was predictable, denouncing the Delphi plan as “a travesty and a concern for every American” and saying strike action was almost inevitable.

“Delphi’s transformation plan is intended to allow the company to become competitive in the global marketplace,” it said in a statement late on Friday afternoon.

“Emergence from the Chapter 11 process in the U.S. requires that we make difficult, yet necessary, decisions,” said Delphi chairman and CEO Steve Miller.

“To complete our restructuring process, we must focus on five key areas.  First, we must modify our labor agreements to create a competitive arena in which to conduct business going forward.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

“Second, we must conclude our negotiations with General Motors to finalise its financial support for the legacy and labour costs we currently carry and to ascertain its business commitment to Delphi going forward.

“Third, we have to streamline our product portfolio to capitalise on our world-class technology and market strengths and make the necessary manufacturing alignment with our new focus.

“Fourth, we must also transform our salaried workforce to ensure that our organisational and cost structure is competitive and aligned with our product portfolio and manufacturing footprint.

“And fifth, we must devise a workable solution to our current pension situation, whether it is to stretch out pension payments or develop an alternate solution.”

Miller added that Delphi was “mindful of the impact” of the plant on employees and communities, “yet ultimately, these actions will result in a stronger company with future global growth opportunities.”

Though it acknowledged progress in recent discussions with the company’s unions and GM, particularly on the axing of hourly workers, “the parties have not yet reached comprehensive agreements” and Delphi confirmed it would file two motions in US bankruptcy court on Friday seeking authority to reject US labour agreements after 10 days’ notice to the unions and to modify retiree benefits, and its initial motion to reject unprofitable supply contracts with GM.

Court delay

Delphi added that the court has allowed five weeks between the filing of the motion and the court hearing (rather than the usually 14-day period in the Bankruptcy Code) so that Delphi and its unions can continue working on consensual agreements before the hearing. The court also directed the parties to promptly “meet and confer” to resolve the motion.

“While our Court filings are necessary procedural steps to enable action that may become necessary at some point in the future, we are singularly focused on reaching a consensual resolution with all of our unions and GM before any court hearing is necessary,” said Miller who reiterated Delphi’s earlier offers to affected hourly employees.

Commenting on Delphi’s current unprofitable supply contracts with GM, Miller said: “We need GM to cover a greater portion of the costs of manufacturing products for GM at plants that bear the burden of our legacy costs.  We simply cannot continue to sell products at a loss.”

The company said that the initial GM contract rejection motion covers less than 10% of GM’s contracts as and approximately half of the North American annual purchase volume revenue from GM.

Delphi expects this motion to be heard on 12 May to facilitate continued negotiations between Delphi and GM.  The company said that it also delivered a letter to GM on Fridayy initiating a process to reset the terms and conditions for more than 400 commercial agreements that expired between 1 October, 2005, and 31 March, 2006.

The company said that the renewal of expired and expiring commercial contracts on acceptable terms and conditions to Delphi does not require bankruptcy court approval.

The company also assured GM that Delphi would not unilaterally revise the terms and conditions on which Delphi was providing interim supply of parts to GM in connection with the expired contracts or file additional contract rejection motions prior to 12 May so long as GM did not initiate re-sourcing or other hostile commercial initiatives against Delphi.

Miller added: ” Even if it becomes necessary to complete the hearings on the motions being filed today and the company obtains the relief requested in these motions, Delphi will not immediately impose all of the relief sought in the motions.  We intend to work with our unions and GM but at the end of the day Delphi must be competitive in the global marketplace.”

New product focus

Delphi said it plans to focus its product portfolio on those core technologies for which it has significant competitive and technological advantages and does not expect significant impact on Delphi’s independent aftermarket or consumer electronics businesses, not its medical, commercial vehicles or other adjacent-market businesses and product lines.

Rodney O’Neal, president and chief operating officer, said Delphi will concentrate on:

  • Controls & security (body security, mechatronics, power products and displays);
  • Electrical systems, connection systems and electrical centers);
  • Entertainment & communications (audio, navigation and telematics);
  • Powertrain (diesel and gas engine management systems);
  • Safety (occupant protection and safety electronics); and
  • Thermal (climate control & powertrain cooling).

O’Neal said that these core businesses are where Delphi’s technical strength can provide the greatest support and differentiation to its customers.

Core manufacturing sites

The company has identified manufacturing sites in Brookhaven and Clinton, Mississippi, Grand Rapids, Michigan, Kokomo, Indiana, Lockport and Rochester New York, and Warren and Vandalia in Ohio as its core automotive facilities in the United States:

“To achieve profitability and become competitive, these locations must implement productivity enhancements, product line restructuring and workforce reductions,” the statement said.

Added O’Neal. “Our emphasis will be on products with greater electronics content, precision manufacturing and complex, complete systems for our diverse customer base.”

Delphi will maintain its commitment to technology development, and plans to continue investing more than 7% of annual revenue into the development of future products.”

But he added that there must be “significant changes” at many of the company’s remaining operations, including reduction in non-core support operations, implementation of more productive work practices, subcontracting, and other initiatives.

Non-core lines to go

O’Neal also identified non-core product lines that do not fit into the company’s future plans and said that the company will seek to sell or wind-down these product lines.

“Non-core product lines include brake & chassis systems, catalysts, cockpits and instrument panels, door modules and latches, ride dynamics, steering and wheel bearings.

“We believe many of these product lines have the potential to compete successfully under new ownership that has the resources and capital to invest in them,” O’Neal said.

The company said that it intends to sell or wind-down approximately one-third of its global manufacturing sites as part of the transformation plan.

Salaried employee reduction

O’Neal said that the company expects to reduce its global salaried workforce by as many as 8,500 employees, or 25%. When the selling, general & administration (SG&A) cost saving plan is fully implemented, Delphi should realise savings of approximately $US450m a year in addition to savings realized from competitive measures planned for its core businesses and the disposition of non-core assets.

“We expect that the portfolio and plant changes will also require reductions in the number of people required to support our business, including fewer officers and executives.

“Up to 40% of current corporate officer positions will ultimately be eliminated,” O’Neal said.

Delphi also announced it was reviewing salary schemes and freezing current pension plans, replacing the latter with defined contribution plans that include flexibility for both direct company contributions and company matching of employee contributions.

UAW response

UAW president Ron Gettelfinger and vice president Richard Shoemaker said in a statement: “Delphi’s misuse of the bankruptcy procedure to circumvent the collective bargaining process and slash jobs and wages and drastically reduce health care, retirement and other hard-won benefits or eliminate them altogether is a travesty and a concern for every American.

“Delphi’s proposal goes far beyond cutting wages and benefits for active and retired workers. Delphi’s outrageous proposal would slash the company’s UAW-represented hourly workforce by approximately 75%, devastating Delphi workers, their families and their communities.

“Delphi’s filing Section 1113 and Section 1114 motions with the US bankruptcy court – like the quality of the proposals it has made to the UAW – is another indication that Delphi has never been serious about finding a solution to its current problems through the collective bargaining process.

“The changes touted in Delphi’s most recent proposal are entirely contingent on GM’s financial support, but GM has advised us and stated publicly that it has not agreed to provide that funding. In other words, Delphi’s latest proposal is basically a reiteration of its previous proposal.

“Last week, after many long, hard days and nights of negotiations, the UAW, GM and Delphi reached agreement on a Special Attrition Program that will reduce Delphi’s costs. That agreement, which was reached without an arbitrary, self-imposed deadline, created momentum that could have allowed the UAW, GM and Delphi to make progress in discussions focusing on other areas.

“Unfortunately, Delphi’s filing of its 1113/1114 motions kills that momentum. Indeed, today it appears there is no basis for continuing discussions.

“In the event the court rejects the UAW-Delphi contract and Delphi imposes the terms of its last proposal, it appears that it will be impossible to avoid a long strike.

“The UAW has worked diligently in good faith to resolve the Delphi situation through collective bargaining instead of through a lawyer-driven court process or confrontation. Regrettably, Delphi has chosen another path.”