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Nov. 28 (Bloomberg) -- Delphi Corp. Chief Executive Steve Miller backed away from his threat to cancel union contracts by mid-December, averting a potential strike that could cripple production at its former parent, General Motors Corp.
Delphi won't ask a judge overseeing its U.S. bankruptcy reorganization to void labor contracts if the company and its unions fail to reach a wage-concession agreement by Dec. 16, according to a Delphi statement today. Miller, who in four months at Delphi has roiled Detroit with demands for job, wage and benefit cuts, sought to have hourly pay slashed from $27.50 to as little as $10.
GM shares rose as much as 2.8 percent. Two weeks ago, investors pushed the shares to an 18-year low after United Auto Workers President Ron Gettelfinger said Miller didn't appear willing to negotiate, heightening prospects for a strike. Analysts said most of GM's $19.2 billion in cash reserves could be drained if a protracted Delphi walkout cut off the supply of parts to GM factories.
``It's obviously good news and has to be a sigh of relief for GM,'' said Sanford C. Bernstein & Co. analyst Brian Johnson. ``Sounds like they're making progress behind the scenes and without the looming court dates further inflaming passions.''
GM, which has four straight quarterly losses, agreed to temporarily forgo previously negotiated 2006 price reductions on Delphi parts, the supplier also said today. In addition, Delphi said talks are accelerating on financial aid that GM, the world's largest automaker, may provide its biggest parts supplier.
``This is the first proof that we've had that GM is involved with helping Delphi,'' said Sean McAlinden, an analyst with the Center for Automotive Research in Ann Arbor.
Crippling Effect
The deadline was delayed because of ``progress made with GM'' and not pressure from the unions, Claudia Piccinin, a spokeswoman for Troy, Michigan-based Delphi said, without elaborating. The deadline could be re-established as early as Jan. 20, she said.
GM, the world's largest automaker, doesn't comment on terms of supplier contracts, and won't comment on Delphi's union discussions, GM spokesman Jerry Dubrowski said. The Detroit-based automaker continues to work ``constructively'' with Delphi where possible, he said.
GM shares rose 20 cents to 23.06 at 1:35 p.m. in New York Stock Exchange composite trading. They reached $23.50 earlier.
Measuring the Toll
Sanford C. Bernstein's Johnson said Nov. 16 a three-month Delphi strike could bankrupt the automaker. Deutsche Bank Securities Inc. analyst Rod Lache this month estimated a three- month strike would drain about $13 billion of GM's cash.
Delphi's 7.125 percent note maturing in 2029 rose 2.25 cents to 56.5 cents, according to Trace, the bond-price reporting system of the NASD. The bond was the most heavily traded security on Trace among institutional investors with 21 transactions of more than $1 million at 10:37 a.m. in New York. Delphi bonds, which are defaulted, don't pay a yield.
Miller, who steered turnarounds at such companies as Waste Management Inc.
and Bethlehem Steel Corp., took over as Delphi's chief executive July 1.
>From the start, he said he would resort to bankruptcy if he couldn't wrest
wage concessions from unions and financial aid from GM. Delphi filed for
Chapter 11 bankruptcy protection on Oct. 8.
Since then, Miller has inflamed unions by proposing massive wage cuts, reductions in vacation days and increased contributions in health-care payments. UAW President Ron Gettelfinger called Delphi's wage proposal an ``insult.'' The UAW and five other unions have banded together to protest what they say is an attack on middle-class living standards.
Wagoner's Memo
Concern about a bankruptcy at GM from a Delphi strike or other problems prompted GM Chief Executive Rick Wagoner to send an e-mail to employees Nov. 17 assuring them he didn't plan a Chapter 11 filing.
GM has said a Delphi insolvency may increase future GM retirement costs as much as $12 billion. GM agreed to honor some Delphi employee retirement costs if Delphi couldn't honor those agreements as part of the 1999 spinoff of the supplier from the automaker.
``If the union is dictated to by Delphi, they are likely to go on strike and that is a negative for General Motors,'' said Brian Reynolds, chief market strategist for MS Howells & Co. in Dunstable, Massachusetts. ``GM would be crippled by a Delphi strike. To the extent they're still talking, that can lead to a better outcome for all three parties.''
Picket Lines
The UAW plans to stage informational picket lines at Delphi factories in the U.S. tomorrow to protest a plan to offer $88 million in bonuses and a stake in the company to managers once the company emerges from bankruptcy.
With informational picketing, unions attempt to raise public awareness of their complaints but don't try to stop production.
Delphi's Miller wants permission from a U.S. judge to compensate 486 managers for staying with the company through its court-supervised reorganization. A second part of the plan provides a 10 percent stake in a reorganized Delphi to 595 executives.
To contact the reporter on this story: Jeff Bennett in Southfield, Michigan at jbennett17 at bloomberg.net
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