Delphi Re-Ups The Re-Org

Edward Niedermeyer
by Edward Niedermeyer

Delphi has been lingering in Chapter 11 for nearly three years now, with little relief appearing on the horizon. Automotive News (sub) reports that the GM spinoff has filed a new reorganization plan, which appears to more realistically reflect its predicament. In the new filing, Delphi’s worth is estimated at $7.2b, down significantly from the $12.8b value the firm was said to carry at the beginning of this year. With its only investor, Appaloosa Capital, having bailed, Delphi needs to raise $3.75b in order to emerge from bankruptcy. But that number doesn’t reflect the fact that the new plan calls for GM to make a $10.6b investment in its parts maker, including taking over $3.4b worth of pension obligations. In other words, GM must sink more money into Delphi than the part supplier is worth or risk a supply shortfall since other firms won’t touch Delphi’s GM contract pricing. And it’s not like GM has tons of cash just sitting in the bank to bailout its spinoff. This is where GM’s cash burn and supplier cost-shuffling come together to put the General between a rock and a hard place. There’s no word on if, when, or how GM is going back its struggling supplier, but a hearing is planned for October 23 and a final ruling should arrive by December 17. GM needs $10.6b by then to prevent its entire business from crumbling. Otherwise, Delphi goes to Chapter 7 while GM begins a bankruptcy court adventure of its own.

Edward Niedermeyer
Edward Niedermeyer

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  • Lichtronamo Lichtronamo on Oct 06, 2008

    This is one of the reasons why the $25 Billion in loan guarantees is meaningless.

  • Ihatetrees Ihatetrees on Oct 06, 2008

    Well done, Mr Niedermeyer. With all the other financial mayhem, I'd forgotten about the Delphi deadline / meltdown. If GM does file, do the 'Deathwatches' officially end? Will they be replaced with 'Re-birth' watches? Or 'Un-dead' watches? How about 'GM Zombie Watch'! At least while they're in re-org mode... Or 'GM Pheonix Watch' if you wanna be optimistic.

  • John Horner John Horner on Oct 06, 2008

    Ford is looking smart for aggressively bailing out Visteon a few years ago by taking back weak product lines, obsolete factories and expensive workers. Visteon seems to be muddling through a restructuring without going chapter 11 and Ford doesn't seem to be in danger of loosing Visteon as a critical supplier anytime soon. Visteon is still a very sick company, but compared to Delphi it looks like an Olympic marathon champion! Depending upon how bad things get, the US government may have to start selectively bailing out "national champions" in key industries. Mashing the remaining US based auto companies into one behemoth, British-Leyland style, is not without question. The recent crisis has sounded the death knell for the "hands-off" governmental theory of the Reagan era. Today we have a Republican administration presiding over the de-facto (and in some cases actual) nationalization of many of the giants of the financial industry. If things continue to be bad you can expect that trend to grow even stronger. The pendulum is swinging back the other way at an ever increasing rate. Study the political and economic history of the period between the 1920s and the late 1930 to get a preview of just how sweeping the changes can be in times of crisis.

  • Bumpy Bumpy on Oct 06, 2008

    "If GM does file, do the ‘Deathwatches’ officially end? Will they be replaced with ‘Re-birth’ watches? Or ‘Un-dead’ watches?" GM Liquidation Watch