Delphi Heads for Chapter 7 Meltdown

Robert Farago
by Robert Farago
delphi heads for chapter 7 meltdown

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.

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  • Blindfaith Blindfaith on Sep 07, 2008

    The purpose of Delphi was not to create a competitive parts supplier but to legitimetly dump all those high priced employees tied to all that unpaid for retiree benefits. Delphi IS an absolute success for GM. Can anybody argue this point?????

  • Cos999 Cos999 on Sep 07, 2008

    joeaverage: VISTEON and FORD saw the day of reckoning coming and worked together to keep VISTEON out of bankruptcy. A deal was negotiated with UAW approval in 2005. FORD basically took back money losing plants and formed an LLC to sell them or shut them down. Here is the press release: FORD still accounts for about 50% of VISTEON business though, down from about 75% before the deal. (educated guess, could be off by +/- 10%)

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