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Delphi seeks to void labor contracts

Delphi, which plans to eliminate up to 40 per cent of its corporate officers, hopes to save about $450 million annually.

india Updated: Apr 01, 2006 11:18 IST

Auto parts maker Delphi Corp moved on Friday to void its US labor contracts, cut up to 8,500 salaried workers and close or sell a third of its plants globally as it attempts to slash costs and restructure in order to exit bankruptcy.

Delphi also said it would seek to end or renegotiate unprofitable deals with its former parent company, General Motors Corp, which remains its largest customer.

The sweeping cuts were expected to be a key part of Delphi's attempts to emerge from Chapter 11 bankruptcy protection, and Delphi's chief executive said the company has made recent progress in its talks with union leaders and GM.

Delphi, which plans to eliminate up to 40 per cent of its corporate officers, hopes to save about $450 million annually through white-collar work force cuts.

The United Auto Workers warned it would be "impossible to avoid a long strike" if Delphi eventually imposes wage and benefit cuts. Strikes could quickly shutter Delphi's US operations and hobble GM at a time when the world's largest automaker is hoarding cash and releasing key new models.

"It definitely ratchets up the pressure on everyone involved -- sends the message that this is real -- (that this) can't go on forever and provides a sense of urgency," Morningstar analyst John Novak said.

Delphi said it expects to close or sell its noncore plants by 2008, identifying only eight of its 29 main US manufacturing sites as core. Products due to be phased out include brake and chassis systems, cockpits and instrument panels, and door modules and latches, among others.

The Troy, Michigan-based parts maker will focus instead on growth areas in the automotive sector such as electronics, navigation and safety. It will also look for business in the medical systems, aerospace and telecommunications industries.

Delphi filed the motions around midday in bankruptcy court in New York. If they are eventually granted, the company would be able to impose contract terms on its unions, but Delphi said it had no plans to exercise that authority immediately.

"There is room for an agreement," said Dave Cole, chairman of the Center for Automotive Research, an industry research organization. He added that it appears the parties still want to reach a deal by mid-June.

Hearings to start in May

Delphi, which GM spun off in 1999, said hearings on the labor motions would start May 9, but it remains in talks with GM and its unions.

"Emergence from the Chapter 11 process in the US requires that we make difficult, yet necessary, decisions," Chief Executive Steve Miller said.

Delphi last October sought bankruptcy protection to slash wages and benefits of hourly workers and close a significant number of plants to reverse losses in North America. International units were excluded from the filing.

The company had said it needed at least the framework of an agreement by Thursday with GM and the unions representing most of its 34,000 US hourly workers, or it would file the motions on Friday.

Delphi made progress on one front, reaching a basic agreement that could make up to 17,000 blue-collar workers retirement-eligible and allow another 5,000 to return to GM.

However, the UAW and the International Union of Electrical Workers-Communications Workers of America rejected Delphi's most recent wage and benefit proposal earlier this week.

Delphi said its core US manufacturing sites have about 18,000 hourly and salaried workers, but restructuring and further job cuts would still be needed.

New terms with GM needed

As part of its restructuring, Delphi will seek to reject GM contracts covering about $7 billion of North America parts purchases and has asked GM to reset terms on more than 400 other agreements.

"We simply cannot continue to sell products at a loss," Miller said.

GM, whose shares were off 1 per cent, said it was disappointed by Delphi's decision to reject certain supply contracts and remained committed to reaching an agreement.

Delphi also plans to freeze its US pension plans for hourly and salaried workers to maintain benefits accrued. It will offer defined contribution plans for salaried workers and hourly workers who are more than seven years from retirement.

However, Delphi said it will still need outside help to extend contribution funding over a longer period.

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