Wednesday 25 February 2009
by: David McLaughlin, The Wall Street Journal
Delphi employees on their way to work. (Photo: Steve Perez / The Detroit News)
Delphi Corp., the largest parts supplier to General Motors Corp., won court approval to terminate health benefits for thousands of retired salaried employees after arguing the move is critical to keeping its slow-going bankruptcy reorganization afloat.
Ending the benefits to about 15,000 people allows the auto supplier, which has been operating under Chapter 11 protection since late 2005, to wipe out more than $1 billion in liabilities and $70 million in annual cash costs.
A U.S. bankruptcy judge decided in Delphi's favor at a hearing Tuesday over the objections of about 1,600 retirees, who said in court filings that the auto-parts company can't unilaterally terminate their benefits. The retirees said that GM, Delphi's former owner, promised lifetime medical coverage to many employees.
In making his decision, Judge Robert Drain of the Southern District of New York said "every dollar counts" for Delphi. The company, spun off from GM in 1999, is scrambling to finance its exit from bankruptcy court.
"We were very aware this would be a significant hardship imposed on all our retirees," Delphi Executive Chairman Steve Miller said at the hearing.
In recent years, escalating health-care costs have been a key reason for the deterioration of the domestic auto industry. Last summer, GM said it no longer would provide health-care benefits to salaried retirees over the age of 65. Ford Motor Co. has made its white-collar retirees pay higher costs for medical care, while Chrysler LLC eliminated medical benefits for its retired salaried workers in 2006. Retired union workers at the Big Three, meantime, have retained their health-care benefits.
Currently, the United Auto Workers union is negotiating with GM and Chrysler over how they will fund health-care benefits for blue-collar retirees. On Monday, the UAW struck a deal with Ford allowing it to fund half of its future cash obligations to a health-care trust by using company stock. GM and Chrysler are negotiating terms with the UAW believed to be aimed at more drastically cutting the companies' cash obligations to their retiree health-care funds.
Both GM and Chrysler are lobbying for additional federal bailout funds on top of the $17.4 billion the White House granted them in December. Without additional funds, both could be forced to file for bankruptcy protection. If that were to happen, medical benefits for retired UAW members and spouses - long considered to be among the most generous in the entire U.S. manufacturing sector - could be significantly cut.
Delphi's move to terminate the retiree benefits comes as its bankruptcy reorganization has come under growing pressure. The company has warned it may not have enough money to pay back its $4.3 billion bankruptcy loan and $1.6 billion it owes GM.
A key issue facing Delphi centers on a handful of money-losing plants that the supplier runs strictly to build parts for GM vehicles in the U.S. Those factories were once owned by GM, and the auto maker is now looking to take them back so it can better control the supply of parts given the uncertainty surrounding Delphi.
Mr. Miller said in court that talks between the two companies are ongoing, but it is "far from certain" that GM will end up taking over the Delphi plants.
GM has recently taken action to move away from troubled suppliers with which it had critical sourcing contracts. In one case, GM pulled its tooling for parts needed for the coming Chevrolet Camaro sports car from a supplier that had filed for bankruptcy protection.
-------
John Stoll contributed to this article.
No comments:
Post a Comment