Bankrupt parts maker Delphi has reached a tentative agreement and signed a memorandum of understanding with the United Auto Workers (UAW) union and General Motors covering site plans, workforce transition and other issues as it works towards emerging from Chapter 11 protection.


“The agreement is subject to union ratification and approval by the US bankruptcy court,” Delphi’s chief restructuring officer John Sheehan said in a statement.


“If ratified, we believe this agreement will be a significant milestone in our transformation and a major step towards emergence.”


Delphi said it would not provide further details.


Separately, The Associated Press (AP) said this tentative wage-cutting agreement reached late on Friday set the pattern for future pay in the US automotive parts industry.


Union officials had earlier told the news agency the pact would cut wages for longtime UAW workers from around $US27 per hour to between $14 and $18.50 while industry analysts said it could become a template for other parts suppliers.


AP noted that the pact, if approved, would end the threat of a strike that could have shut down production at General Motors, Delphi’s largest customer. It brings to a close two years of often contentious negotiations in which the UAW threatened to strike and accused Delphi of leading a race to dismantle the middle class.


Troy-based Delphi, on the other hand, said it needed lower wages to compete in a global economy, the Associated Press added.


Delphi, GM’s former parts arm, was spun off as a separate company in 1999 but filed for bankruptcy protection in October 2005 and asked for court permission to void its labour contracts.


GM was also involved in the agreement announced on Friday because it will have to carry an estimated $US7bn in liabilities for Delphi pension and retiree health care expenses.


The deal will have a much larger impact than just on Delphi and General Motors, David Cole, chairman of the Centre for Automotive Research in Ann Arbor, told the Associated Press before the deal was announced.


“It’s a pattern supplier agreement,” Cole, who added that sales of many factories by suppliers and even Ford have been delayed while Delphi negotiations dragged on, was quoted as saying. “Nobody’s going to pick up any of these assets unless they have an agreement that they think is going to be competitive over the longer term.”


While it likely was difficult for UAW leaders to agree to reducing wages, the union was probably able to preserve far more than the $9 per hour that Delphi proposed early in the bankruptcy proceedings, Harley Shaiken, a professor at the University of California-Berkeley specialising in labour issues, told the news agency.


“The agreement reflects the dismal context of the auto parts industry in a global world,” Shaiken reportedly said. “The $18 wage is approximately double what Delphi offered immediately after the bankruptcy. So they managed to salvage a much better agreement.”


According to the Associated Press, UAW officials has told local leaders last Tuesday they would like to wrap up the Delphi matter before 23 July, the formal start of national contract talks between GM, Ford, Chrysler and the UAW.


That means voting likely would be done before 1 July when GM’s plants go on a two-week shutdown, the news agency speculated.


Shaiken reportedly said other parts suppliers likely will try to match or beat the Delphi-UAW wages, but the UAW would be reluctant to grant lower pay to healthy partsmakers such as Canada’s giant Magna International.


The report added that Delphi, which lost $533m in the first quarter and $5.5bn in 2006, needs a settlement with its unions before private equity firms will invest up to $3.4bn it needs to emerge from Chapter 11 later this year.


The news agency noted that, in a recent regulatory filing, GM estimated that its labour expenses for Delphi include another $500m when it emerges from bankruptcy protection and $300m to $400 million for several more years which may come as wage subsidies for Delphi workers. GM also estimated that it would have to make an undetermined number of annual transitional payments to Delphi of about $100m.


However, the Associated Press said that GM expects that the Delphi labour costs will be more than offset by reductions in a $2bn annual price penalty that GM now pays Delphi for vehicle parts.