Delphi Heads for Chapter 7 Meltdown
By Robert FaragoSeptember 6, 2008 - 1,046 views
Even before GM spun off parts maker Delphi in 1999, critics questioned the new company’s viability. Delphi depended on GM’s business for its survival. While bean counters talked-up diversification, new markets, etc., the 800-pound General in the room wasn’t going away– especially with all the GM-obligatory Delphi-related job, pension and wage benefits secured by the United Auto Workers. And GM’s need for parts. Since then, Delphi done well abroad and lost money hand-over-fist in the U.S. And so Delphi failed, filing for bankruptcy protection in 2005. But here’s the thing: GM wants Delphi to survive as is. The money they’re proposing to pour in– $650m loan agreed, $300m more proposed– seems a good money after bad mistake. Until you realize that a semi-viable Delphi guarantees the ailing automaker a supply of mission critical parts at a price they like. That’s right: $950m (and the rest) is less expensive than paying full freight for Delphi’s parts, which cost GM $3.12b in the first half of 2008. If Delphi goes into Chapter 7 (liquidation), GM’s either going to have to buy out the factories that make their stuff (with what money?) or face a more “realistic” pricing structure from the factories’ new owners. What’s good for GM isn’t good for Delphi’s investors and creditors, and don’t they just know it. “A group led by Highland Capital Management LP said in a letter to Delphi’s board of directors that the new financing by GM would benefit only GM while stripping worth from creditors imperiled by Delphi’s continuing massive losses in North America,” Automotive News [sub] reports. And there you have it. Until you don’t. Delphi’s Chapter 7 is coming; it could well be the straw that breaks GM’s back.
Posted in Chapter 11 | News Blog | Suppliers | 10 comments 
Inside Chrysler’s Supplier Squeeze
By Edward NiedermeyerAugust 25, 2008 - 1,982 views
Since taking over as Chrysler's purchasing boss in January, John Campi has whipped the Cerburian dog into an appetite for hardball supplier tactics. And the pressure to hoist the black flag and begin slitting throats is coming from Cerberus, who have mandated a $1k per vehicle cost reduction within three years. Automotive News (sub) details Chrysler's nasty legal battles, from the shockingly crass Plastech debacle to (relatively) petty suits against giant firms like Magna and JCI. When asked about his law-firm-fueled approach, Campi talks a blunt party line. "I will work with every supplier I can in a collaborative fashion to help them become profitable and help us. "But we don't have the wherewithal to prop up a supplier simply to keep them running. I won't do it." And oil, steel and plastic price hikes be damned. Supplier lawyer Fred Smith of Warner Norcross & Judd characterizes Chrysler's negotiating style as "we don't care who is at fault, you will contribute; give us money if you want to maintain a parts relationship." Acknowledging that several suppliers have threatened to stop production over price negotiation, Campi has only tough talk for the malcontents."If a supplier wants to push us because of their fear, then they are violating the contract in place, and I will take the necessary action," he glowers. "And I say, I'm not going to let you shut down production. If you're serious about this, you have to live with the legal consequences." But, after showing off all the lawyers in his Rolodex, Campi seems to remember that Chrysler has to at least appear to care about its middle- to long-term, and pledges "equally shared benefits." Meaning there's plenty of nothing to go around.
Posted in Industry | News Blog | Suppliers | 16 comments
Delphi Bondholders Sue GM To Stop $300m Loan
By Robert FaragoAugust 21, 2008 - 892 views
Why would Delphi's bondholders sue GM in Manhattan court to prevent a $300m cash infusion? Because Highland Capital Management and other bondholders fear GM's "undue" influence over the bankrupt parts supplier. [NB: the $300m is on top of an existing $650m loan.] In other words, GM's money could give it the leverage it needs to prevent its former division from selling off profitable bits of Delphi. Like, say, the parts of Delphi that supply the GM corporate mothership with parts. GM control would also mean that the artist formerly known as the world's largest automaker could forestall a Delphi Chapter 7, should the bondholders decided that the jig is up. "It is merely a band-aid (albeit an enormously expensive and porous band-aid),'' the bondholders told Bloomberg. "It is a truism that borrowing to fund losses is a loser's bet.'' You want to talk about cash burn? "Highland and other bondholders said in the objection to the additional financing that Delphi used more than $960 million in net cash to fund operating activities in just the first six months of 2008." Anyway, bankruptcy judge Robert Drain approved a $5m company payout for the legal costs of defending former Delphi officers and employees from lawsuits related to pension funds and the bankruptcy.
Posted in Chapter 11 | Media | News Blog | Suppliers | 5 comments
Carmakers Fight Anti-Terrorism Import Law
By Robert FaragoAugust 20, 2008 - 947 views
You'd think "just-in-time" production techniques wouldn't extend to, say, Korea (Aveo) or China (Equinox engine). But you'd be wrong. And The National Association of Automakers view new anti-terrorism legislation– that's been six years in the making– as a threat to their business. "The U.S. Customs and Border Protection Bureau wants shippers to collect 10 new categories of data for U.S.-bound cargo 24 hours before it's loaded on ships in foreign countries," The Detroit News reports. "As well as to provide data about the physical location of cargo aboard a U.S.-bound vessel and status messages that report container movements… Automakers say the rule could upset the delicate 'just in time' shipping of parts to arrive at auto factories as they are needed for vehicle production, which saves the companies the cost of stockpiling parts… The automakers argue the rules would do little to make the country safer." And might be extended to Canada and Mexico. "Automakers argue in their letter that 'there is a better way,' saying that CBP [Customs and Border Protection] should focus 'on importers, exporters and countries that pose a risk.'" Isn't that exactly what they're trying to do?
Posted in China | News Blog | Safety | Suppliers | 35 comments
Chrysler to Johnson Controls, Mahindra: You Talkin’ to Me?
By Robert FaragoAugust 18, 2008 - 1,251 views
CNNMoney reports that Chrysler has filed suit against Johnson Controls for "systematic and deliberate overcharges." The ailing American automaker claims the world's leading battery supplier "provided fictitious weight data under the guise that it could charge Chrysler more for the amount of lead used in its battery products. Chrysler had agreed to pay more to cover increasing lead costs." ChryCo's seeking to claw back $15m from Johnson. Or it could be trying to ensure that none of its suppliers gets too "feisty," in terms of demanding cash-on-the-nail for their goods or services. Or both. Or maybe Chrysler's Cerberusian masters reckon there's gold in them thar lawsuits. The Times of India intimates that Mahindra and Mahindra are looking to pay-off settle with Chrysler re: the Jeepish front grill on the Indian automaker's Scorpio SUV.
Posted in Chapter 11 | News Blog | Suppliers | 6 comments
TTAC Called It: Delphi “Involuntarily separates” 600 Employees by 2009
By Robert FaragoAugust 18, 2008 - 1,218 views
Our Wild Ass Rumor was three days early, but accurate. Our source inside the former GM division and bankrupt autoparts maker reports that the company has told its workers that 600 white collar Delphinians– in the Electronics and Safety organization– will be shown the door by the end of the year. (The total number employed thereabouts is 3k.) Delphi will identify the 600 puntees by the end of this month [August]. And despite previous promises, the pension freeze is now "independent of bankruptcy emergence." And when might THAT be? Our source says there were "no warm fuzzies on when we could expect to emerge." The Delphi wound continues to fester, only more so.
Posted in Chapter 11 | News Blog | Suppliers | 17 comments
Rough Times Ahead For NA Suppliers
By Edward NiedermeyerAugust 15, 2008 - 935 views
The decline of the US auto market is bad news for OEMs, but as usual shit flows downhill and auto suppliers could take the brunt of the impact. Sven Gustafson blogs an A.T. Kearney survey at MLive.com which says North American auto suppliers could lose up to $50b between 2008 and 2011. Caught between weakening demand for new vehicles and rising commodity costs, the survey estimates that the supplier sector will need $38b in incremental capital over the next five years. Another report by Grant Thornton LLC estimates that the hard times could put a full third of suppliers at risk of bankruptcy. Unsurprisingly, firms in the SUV supply chains face the highest risks thanks to their reliance on weak US sales. "The full impact of very low truck and SUV production in the second half of the year and any new production cutbacks this fall - something we believe is likely - will only make supplier cash flow problems more difficult to manage," saiys Grant Thornton principal Kimberly Rodriguez. And in the past these woes could have been turned around by acquisitions or mergers, but now the key to survival seems to be diversification beyond the auto industry. With credit tight, massive retoolings and turnaround plans also aren't in the cards for many suppliers who have little choice but to focus on successful core business to survive the rough patch. "I'd say things are being looked at very carefully," says Doug Grimm, CEO of supplier Citation Corp. "I think everybody's wondering if we've seen the bottom yet."
Posted in Industry | News Blog | Suppliers | 6 comments
Feds Threaten GM with $8b Bill for Delphi Pensions
By Robert FaragoAugust 15, 2008 - 1,537 views
![By now, Delphi had lost much of its importance (and wealth). It still existed as a cultural and religious center, but never regained its political power again, although it remained important as a center of \"creating Greekness\". For example, Roman politicians who wanted to show that they were civilized people, sacrificed in Delphi - if only to win political support in the Greek world. (text and pic courtesy livius.org)](http://www.thetruthaboutcars.com/wp-content/uploads/2008/08/delphi_tr_athens12.jpg "By now, Delphi had lost much of its importance (and wealth). It still existed as a cultural and religious center, but never regained its political power again, although it remained important as a center of \\"creating Greekness\\". For example, Roman politicians who wanted to show that they were civilized people, sacrificed in Delphi - if only to win political support in the Greek world. (text and pic courtesy livius.org)")
Once again, former GM division and bankrupt parts supplier Delphi is proving to be the thorn in GM's side that could well prove to be a lance through its heart. Or something like that. Anyway, Automotive News [sub] reports that the feds are taking steps to sort out Delphi's pension liabilities, and The General could end up with one big ass bill. "In a letter to GM and Delphi, the federal Pension Benefit Guaranty Corp. warned it would lay claim to $8 billion if the automaker does not keep its pension plans intact, the [New York Times] paper said. This would dilute the claims of Delphi's other unsecured creditors, who are owed about $3.5 billion." To forestall that possibly mortal blow, "The U.S. government has asked bankrupt auto parts maker Delphi Corp. to transfer more than $1.5 billion of unfunded pension obligations to former parent General Motors by September 30." Whew! And here I thought we were talking about real money.
Posted in Chapter 11 | News Blog | Suppliers | 10 comments
Wild Ass Rumor of the Day: Delphi to Slice Hundreds of Jobs on Friday
By Robert FaragoAugust 13, 2008 - 1,119 views
We have it from an insider that the bankrupt parts supplier Delphi is about to "downsize" its domestic ops. Not that it'll do them much good. Now that Appaloosa Investments and Friends bailed-out of Delphi's bail-out plan, the former GM division is on its last life. Although Delphi's suing its jilters, what are the odds that a judge can/will force Appaloosa to fork over the billions the money men didn't leave on the table? At best, more money will be lost on lawyers, all 'round. All of which means a Delphi Chapter 7 is just over the event horizon. GM will have to buy up (back) the Delphi bits it needs to keep building vehicles. And as GM's August 8th SEC filing points out, "In addition the Benefit Guarantees may be triggered which would result in additional liabilities to us. We may also be subject to additional litigation regarding Delphi." The flames of GM's cash conflagration continue… [thanks to you-know-who-you-are for the tip]
Posted in Chapter 11 | High Finance | News Blog | Suppliers | Wild Ass Rumor of the Day | 10 comments
Steel Futures Market Auto Suppliers’ Savior?
By Edward NiedermeyerAugust 12, 2008 - 713 views
High material costs (particularly steel) are wreaking havoc on automotive suppliers, caught between soaring raw materials costs and cost-cutting customers. But the industry is getting a new tool which could help iron-out the most precipitous jumps in steel prices. Automotive News [sub] reports that the New York Mercantile Exchange will introduce a futures market for domestic hot-rolled coil steel this fall. The move could provide more price predictability for the crucial commodity. "The NYMEX proposal is one more option that we will review in determining the most appropriate overall strategy for us," GM spokesfolks didn't reveal. Steelmakers are not thrilled by the plan. They prefer the current method of direct price negotiation, and warn that speculators could drive prices up (it's hard to believe things could be much worse than the doubling of steel prices since December). Steel mill profits have been strong during the period of price increases, and the bankruptcies which once riddled steel production have migrated to steel customers, particularly auto parts suppliers. Though speculation is always a concern, a competitive futures market typically stabilizes market prices and makes downstream contract negotiations far easier.
Posted in Industry | News Blog | Suppliers | 5 comments
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