Delphi Corp. must cut significant numbers of salaried employees along with hourly workers, the parts maker reportedly said in its first full court hearing for the largest bankruptcy in US automotive history.
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According to Reuters, a lawyer for Delphi outlined its plan for reorganising its faltering US units, taking aim directly at high wage and benefit costs and retirement benefits inherited from former parent General Motors that have sapped profits.
“We don’t make money, in fact we lose a fair amount of money, on what we produce here in the United States,” Jack Butler, a Skadden, Arps partner representing Delphi in the reorganisation said, adding: “The fact is, we have a huge burn rate.”
Reuters noted that much of the focus has been on hourly workers, but Delphi also must cut salaried employees, Butler told Judge Robert Drain in the US Bankruptcy Court for the Southern District of New York, about the US-focused bankruptcy.
The news agency said the Troy, Michigan-based company expects to sell or close a substantial part of its North American operations and cut wages and benefits of hourly workers to make long term changes.
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By GlobalDataAfter the hearing, chief executive Steve Miller told Reuters the number of businesses Delphi keeps will depend on how successful it is at negotiating labour agreements. International units were not included in the filing, the report noted.
When asked whether he could estimate how many salaried jobs may go, Miller told Reuters: “No, we have to sit down and do a business plan. We have to get back to Detroit and get to work.”
Noting that the US automotive industry was doomed to follow airlines and steel mills by slashing formerly robust wages and retirement plans, Reuters said thousands of well-paid union jobs and benefits likely will be lost in Delphi’s restructuring of its US units, where most union employees are paid as though they worked for an automaker, well above wages paid by most of its competitors.
Delphi has about 50,600 US employees, including 34,750 hourly workers who are almost all represented by unions – the United Auto Workers represent about 25,000, the report noted.
Reuters also noted that, under its contract, Delphi pays about $US400 million per year to 4,000 idle UAW workers, a group it hopes to eliminate in restructuring wages and benefits of its hourly workforce.
Butler reportedly said Delphi plans to present contract proposals to its unions next week, but wants to continue negotiations through to the end of the year to try to reach an agreement.
A hearing to reject the labour agreements likely would not begin until late January and Delphi likely would not see relief on wages and benefits until April, he said, according to Reuters.
According to Reuters, UAW leaders have called Delphi’s bankruptcy a bitter pill, particularly in light of improved executive severance packages and executive bonus compensation plans the parts maker has announced. Delphi reportedly plans to ask the court to approve the executive compensation plan at a hearing later in October.
The news agency said Butler defended the plans, saying some senior executives will be, in effect, writing business plans or performing tasks that will put themselves out of jobs and Delphi wants them to have incentives to complete the work.
The bankruptcy also has put Delphi’s pension plans at risk, and analysts reportedly believe Delphi will push its deficit onto the federal insurance programmes as steel companies and airlines have done in recent years.
According to Reuters, the Pension Benefit Guarantee Corp. has said Delphi’s pensions are under-funded by about $10.8 billion and it would cover $4.1 billion should Delphi terminate its obligations.
The report added that has Delphi obtained various orders to set schedules for the bankruptcy, pay employees and pay pre-petition bills for some stressed suppliers to keep its supply chain smooth.
Reuters said Judge Drain also approved an interim order granting Delphi access to $950 million of its prearranged $2 billion of debtor-in-possession financing led by JP Morgan Chase & Co. and Citigroup Global Markets Inc. – Delphi expects to need about $565 million and keep the rest as a cushion.
