Suppliers Watching Delphi

April 10, 2006
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GRAND RAPIDS — Facing Chapter 11 bankruptcy, Delphi has outlined a plan that includes closing 21 of its 29 plants in the United States, leaving only the Wyoming plant in operation in Michigan.

Though closing plants during a company’s restructuring is a common practice, John Weykamp, a director with Conway McKenzie & Dunleavy, a turnaround consulting and litigation support firm, said he is surprised that 80 percent of Dephi’s American plants are scheduled to be closed.

“I’ve never seen a company close this high a percent of their plants before,” he said. “I think in general they’re saying that their cost structure does not allow them to make a number of their products competitively.”

Delphi Chairman and CEO Robert S. “Steve” Miller said in a prepared statement that though the process has been difficult the company is focusing on five areas of change, including modifying labor agreements, concluding negotiations with General Motors, streamlining its product portfolio to capitalize on market strengths, transforming the salaried workforce and finding a workable solution to the company’s pension situation.

“We are mindful of the impact the implementation of this plan will have on some of our stakeholders, including our employees and communities, yet ultimately these actions will result in a stronger company with future global growth opportunities,” he said.

Delphi has identified a core product line to keep in operation, which includes the areas of controls and security, electrical and electronic architecture, entertainment and communications, powertrain, safety and thermal. Among the product lines chosen to cease are brake and chassis systems, catalysts, cockpits and instrument panels, door modules and latches, ride dynamics, and steering and wheel bearings.

As part of the powertrain business, the Wyoming plant manufactures hydraulic valve lifters, hydraulic lash adjustors, continuously variable cam phasers and cylinder deactivation devices, while the Coopersville plant manufactures electronic fuel injectors.

Wyoming Plant Manager Ed DiEnno said because of the delicate nature of the situation, he is not able to comment about the plants.

“The corporation is in a quiet period where we’re not really commenting on anything,” he said.

The plant closings are a reflection on the state of the cost structure between the union workforce and the profitability of its contract with General Motors, Weykamp said.

“They’re basically saying that a majority of their business isn’t worth maintaining in its current form,” he said.

Delphi has filed two motions under Section 1113 and 1114 of the U.S. Bankruptcy Code, which be heard on May 9 and 10. The motions seek the authority to reject U.S. Department of Labor agreements after 10 days notice to the unions, to modify retiree benefits and to reject unprofitable supply contracts with General Motors.

“We intend to work with our unions and GM, but at the end of the day Delphi must be competitive in the global marketplace,” Miller said.

The United Auto Workers disagrees with the company’s stand on labor issues, saying that they are misusing the bankruptcy procedure to circumvent the collective bargaining process.

“Delphi’s proposal goes far beyond cutting wages and benefits for active and retired workers,” said UAW President Ron Gettelfinger and Vice President Richard Shoemaker in a prepared statement. “Delphi’s outrageous proposal would slash the company’s UAW-represented hourly workforce by approximately 75 percent, devastating Delphi workers, their families and their communities.”

As Delphi continues to negotiate labor proposals with the UAW, Weykamp said he believes the situation is unprecedented and will become a standard for other major suppliers when it is resolved.

“This is a landmark agreement that they are attempting to negotiate,” he said. “It’s going to be a very interesting couple of months, to say the least. Either way, the impact will be felt for years.”

As for those left in Dephi’s wake, Weykamp said he believes that any growth in the automotive industry will come from the new domestics including BMW, CAMI, Honda, Renault/Nissan, Subaru-Isuzu, Toyota and Volkswagen, rather than the Big Three. With so many trained, unemployed workers, the new domestics may risk taking a chance with the UAW, he said.

“They have to balance that against the risk of tangling with the UAW,” he said. “I think as a result of their expectations, salary and benefits from a new employer would certainly be lower.”

Weykamp said with the uncertainty surrounding Delphi and its plants closing, the only sure outcome is change.

“There are a lot of unknowns as to how this will affect them individually,” he said of the Coopersville plant employees. “It’s very hard to tell at this point, but clearly there’s going to be some changes for these people.”    

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