By on April 23, 2009

Ah, Delphi. I remember predicting—what, two years ago?—that parts maker Delphi’s collapse would drag GM into bankruptcy. Well, just as GM is falling into C11 on its own accord (so to speak), it seems the ghost of subdivisions past are about to . . . drag GM into bankruptcy. The Detroit News reports that GM’s sent up an emergency flare. “In light of adverse developments in the industry, at GM and at Delphi, GM has been in negotiations with Delphi and its lenders to arrive at solutions that would ensure GM’s source of supply under fair and reasonable terms,” GM said in a statement today. “While GM has proposed a potential solution that would allow for the successful and rapid resolution of Delphi’s bankruptcy case, its lenders have rejected this proposal.”

Check this: GM now says the scheduled nine-week summer shutdown is Delphi related, not a non-sales related adjustment of production to demand. Reuters reports an interim “solution” to Delphi’s implosion: “Delphi has until May 4 to deliver details of its agreement for an additional $150 million from GM. The deadline for that agreement has been postponed several times, most recently by the intervention of the U.S. Treasury.” Gee, I wonder why. Tsk tsk. Another mouth to feed—with out taxes, ‘natch.

GM agreed earlier this year to increase to $450 million the payments it has promised to the parts maker, from an originally agreed $300 million.

GM is also seeking court approval to buy Delphi’s steering business, a transaction opposed by various parties and also blocked by the U.S. Treasury. The court will hold hearings on the matter next month.

Don’t worry! The Presidential task Force on Autos will handle this! Alternatively, do. Worry, I mean.

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20 Comments on “GM: “Delphi could force GM into an uncontrolled shutdown”...”


  • avatar
    kowsnofskia

    Well good. At least something here will cause GM’s inventory to line up a bit closer with demand.

  • avatar
    Mr. Sparky

    Ah the manure truck is here. I think we’re going to need a bigger fan. Is there a wind farm near RenCen?

  • avatar
    lw

    It’s pretty much over… Just try to avoid the collateral damage…

    I don’t understand the Chrysler thing… Bankruptcy and then sell assets to Fiat right away?

    Wouldn’t the banks and Fiat need to agree on a price? I can’t imagine this would happen quickly.

    Who has been Fiat negotiating with for the last 30 days? Chrysler or the banks?

  • avatar
    tced2

    @lw, Fiat has been negotiating with the Auto Czar. Chrysler is not calling the shots. And the Auto Czar is doing the President’s bidding.

    Fiat has very craftily created a bidding triangle by also doing some negotiations with GM about Opel.

  • avatar
    cardeveloper

    Delphi supplies most (all?) OEM’s. their collapse will have far reaching impact.

  • avatar
    paris-dakar

    GM has been in negotiations with Delphi and its lenders to arrive at solutions that would ensure GM’s source of supply under fair and reasonable terms,”

    I had to lol thinking of GM Purchasing suddenly championing ‘fair and reasonable terms’ with their suppliers.

  • avatar
    Samuel L. Bronkowitz

    This is like the moment between your recognition that a car wreck is about to occur and the actual crash. I’ll open my eyes when it’s over…

  • avatar
    dejalma

    I had to lol thinking of GM Purchasing suddenly championing ‘fair and reasonable terms’ with their suppliers.

    Yeah, all those years when they would put their suppliers nuts in vises. Poor, poor GM.

  • avatar
    MikeInCanada

    If I understand part of the problem correctly – and I’m sure I’m not getting all of it – GM has Delphi over a procurement barrel with lots of unprofitable parts contracts.

    However, if GM files Chap 11, Delphi is released from having to honor those contracts and could (definitely will) try and renegotiate at a much higher price. A price that GM just can’t afford.

    Does that sound right?

  • avatar
    cardeveloper

    MikeInCanada,

    you pretty much have it right. OEM’s will beat a supplier up and resource to save $0.003 per part, drive the supplier into bankruptcy and then end up paying $0.30 per part more. It’s a crazy business.

  • avatar
    50merc

    “GM is also seeking court approval to buy Delphi’s steering business”

    Well, that’s a sign of progress. GM must have decided the “rudderless ship” style of management isn’t working.

  • avatar

    “This is like the moment between your recognition that a car wreck is about to occur and the actual crash. I’ll open my eyes when it’s over”

    Or airplane runs out of fuel during decent at FL30. No it gets quiet, you just hear the nothing but the outside air going over the wings, and hope the pilot has practiced his engine out emergency procedures.

    but, there isn’t a runway large enough to dead stick land this flying SOB (SUV)

  • avatar
    Stein X Leikanger

    Who is funding FIAT’s giant takeover of the world’s auto industry?

    Theory – someone is acting through FIAT to pick up the morsels from GM’s wreckage – but they don’t want to be out in the open.

    FIAT – CHRYSLER – OPEL – ? – ?

    Daimler? (They’ve already been talking to BMW)

    Are we going to see a Fiat/Chrysler/Opel/Daimler/BMW?

    Fighting against VAG/Porsche/Skoda; whatever’s left of GM; all ranged against Toyota; and with BYD, Geely and the rest bringing up the rear?

    Or is it Chinese money, moving in through FIAT?

  • avatar
    mattstairs

    MikeinCanada, Cardeveloper

    You guys are right on. The OEM’s (and I hear GM is especially difficult to deal with), have been squeezing the suppliers for a long time. In effect, they have been trying to make up for their own gross inefficiency and mismanagement by taking it out on the suppliers. That can only go on for so long, and now the end game is here.

  • avatar
    Ingvar

    “Theory – someone is acting through FIAT to pick up the morsels from GM’s wreckage – but they don’t want to be out in the open.”

    Most likely it is Fiat themselves.

    Fiat is the only car maker that is in enough bad shape to see this as an opportunity to spearhead the competition. The other makers have enough problems on their own, Fiat is the only one that has to expand/conquer to survive, the others needs to contract.

    And where does the money come from? Most likely, they are borrowing on future assets. With bailout bucks and under-valuated secondary assets, they will get money from different governments, plus, they can sell off all those pieces for profit that they won’t have need for themselves.

    It’s a sort of a bold and cunning plan, in my opinion. All it takes is an opportunistic management that can see a way to make a profit through other makers failures….

  • avatar
    Stein X Leikanger

    You may be right, Ingvar – but they certainly are hungry for car brands these days. And it’s going to be very expensive to run …

  • avatar
    moedaman

    cardeveloper :
    April 23rd, 2009 at 9:35 pm

    MikeInCanada,

    you pretty much have it right. OEM’s will beat a supplier up and resource to save $0.003 per part, drive the supplier into bankruptcy and then end up paying $0.30 per part more. It’s a crazy business.

    I’m pretty familiar with this crap the D2.8 pulls on it’s suppliers. I use to run a warehouse/final production point of an abrasive company in the Detoir area. Our customers did a lot of work for the Detroit automakers. They would get screwed every which way. Not only would they get their nuts squeezed on pricing, but the smaller they were the longer it would take them to get paid! If you complained about it, the OEM would pull the job and take even longer to pay you. And of course they couldn’t pay us because they didn’t get paid. Quite a racket, interest free loans from small businesses. These bastards are only getting what they deserve.

  • avatar
    ZoomZoom

    Re: Comments from moedaman, cardeveloper, MikeInCanada.

    I just don’t get it. If the car manufacturers were so horrible about paying for parts (and I don’t doubt you on this), then why even do business with them?

    I’m befuddled by this methodology of running a business. I mean, how often do you have to fall for the tease before you decide that maybe those customers are not profitable enough to keep around?

    Just cut them off, for crying out loud, and do it before you sink too much money and labor into manufacturing parts for them. There are plenty of other manufacturers who are NOT deadbeats.

  • avatar
    moedaman

    ZoomZoom :
    April 24th, 2009 at 11:28 am

    Re: Comments from moedaman, cardeveloper, MikeInCanada.

    I just don’t get it. If the car manufacturers were so horrible about paying for parts (and I don’t doubt you on this), then why even do business with them?

    I always wondered that myself. But sadly, in the Detroit area, those were the vast majority of jobs available. A friend of mine works in QA for a shop that 20 years ago dropped out of automotive and went into aerospace. They are a lot happier for it.

  • avatar
    lbc_conejo

    @ZoomZoom

    …Why do business with them?

    This is an issue anywhere a market exists with a few buyers and many sellers. The buyer has all of the power and the sellers make less than fair returns until they go out of business or prices rise. Theoretically, suppliers should merge until pricing power becomes more equal.

    This mess will get far more complicated and costly (especially to the taxpayer) before it’s over. Once there’s a plan in place for GM and Chrysler, I think we should put a national sales tax in place on all car sales to help pay for this. It would be a lot fairer than for all taxpayers’ to foot the bill.

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