GM, UAW Weigh Possible Buyouts Of Some at Delphi

Deal Could Help Parts Firm Pare Payroll, Avert Strike As Chapter 11 Case Proceeds

November 15, 2005, Wall Street Journal
By JEFFREY McCRACKEN


General Motors Corp. and the United Auto Workers are discussing the possibility of having the car maker offer buyouts to encourage older workers at Delphi Corp., GM's former parts division, to retire, people familiar with the matter said.

Such a deal could help Delphi, which is operating under bankruptcy protection, pare its payroll and ease the transition to retirement for some of the auto supplier's 34,500 UAW workers. GM isn't under any obligation to buy out Delphi workers, but such buyouts could help reduce the threat of a strike and labor uncertainty stemming from Delphi's bankruptcy filing.

GM is liable for an undetermined amount of pension and health-care obligations for former GM workers who moved to Delphi when the parts unit was spun off in 1999. GM has estimated its liability at anywhere from nothing to $12 billion.

The outlines of any deal are still up for discussion, and thee talks could still fail. Any buyout would likely be dependent on GM receiving assurances that Delphi-UAW workers wouldn't follow through with recent threats to strike to protest wage cuts proposed by Delphi management, people familiar with the talks said.

Strikes ata certain Delphi plants could force some GM assembly plants to shut down, depriving GM of revenue at a time when it is piling up massive losses in North America and struggling to shore up investor confidence.

Delphi has said it needs to cut hourly wages for union workers to around $10 an hour from about $25 an hour.

At this early stage, it is unclear whether Delphi workers who accept a buyout would go into the Delphi pensioon fund or into GM's pension fund as the UAW would prefer, people famililar with the matter said. About half of Delphi's 24,500 active UAW workers are within five years of the 30 years typically required for UAW workers to become eligible for retirement, according to Delphi.

The two sides are also discussing the extent of GM's obligation to Delphi's UAW workers and retirees. Under the 1999 spinoff of Delphi, GM agreed to guarantee the layoff benefits, pensions, retiree health care and life insurance of UAW-Delphi workers, though the extent of that guarantee isn't clear.

At issue is which Delphi hourly workers and hourly retirees GM is responsible for and how much of their pensions or retiree health care GM would have to pay.

Delphi, which filed for bankruptcy protection Oct. 8, is by far GM's largest parts supplier, selling it $15 billion a year in a variety of parts from steering systems to electronics. Delphi has said it needs to slash wages to make its U.S. operations competitive with global rivals. If no arrangement on wage cuts is reached with the UAW, it can ask a bankruptcy judge on Dec. 16 to void its existing labor contract.

Under the bankruptcy code, Delphi could eventually terminate its $8.5 billion pension plan, though no decision is expected to be made on that pension plan until next year.

GM spokeswoman Toni Simonetti declined to comment on GM's discussions with the UAW regarding Delphi.

In a recent interview, Delphi Chairman and CEO Robert S. "Steve" Miller acknowledged that GM, the UAW and Delphi are in continuing discussions about the fate of Delphi's UAW workers but declined to elaborate on them.

"I'm not going to get into what is going on in terms of negotiations. What is not outlandish is to assert that this is really a three-party discussion with GM, particularly in regards to the contingent benefit guarantees they have for Delphi workers. GM is inextricably interwined with everything we do," Mr. Miller said.

He added that GM has "a lot of reasons to help us, such as the assurance of no production disruptions" and that "however this turns out, GM will be a part of it."

Under its 1999 spinoff arrangement with Delphi, GM has an indemnity clause stating that money it spends on pensions, retiree health-care and other benefits for Delphi's union workers would give the auto maker a general, unsecured claim on Delphi's assets in bankruptcy proceedings, much like what a bondholder might have.

Mr. Miller said this indemnity clause, which could give GM a sizable ownersihp stake in Delphi after the supplier exits from bankruptcy, gives GM another reason to help Delphi.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., and a consultant with ties to GM, said he expects the UAW, GM aqnd Delphi could announce "something fairly significant" by the end of the year "that wraps together GM's plan for Delphi workers with work-force reductions and plant closures at GM."

Before Delphi's bankruptcy filing, the UAW and GM had been discussing $25,000 per-persons buyouts of both GM and Delphi workers, with the hope that the GM buyouts would clear the way for some Delphi hourly workers to flow back to GM, according to UAW official familiar with the union's discussions on the issue.

That plan fell apart after Delphi filed for bankruptcy protection, but GM-funded buyouts of Delphi workers to encourage early retirement is "part of the discussion again," said the UAW official.