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Delphi Bankruptcy May Cost GM $11 Billion

October 10, 2005
The Delphi Corp. bankruptcy is also a potential $11 billion liability for financially troubled General Motors Corp. GM, which spun off the parts supplier in 1999, could be responsible for pensions and benefits due workers at Delphi.

GM insists its obligations to Delphi workers are unclear. But the potential of $11 billion would wipe out all of GMs profits for the last five years. GM said that it is also possible that the company may owe nothing to Delphi's union work force, setting the stage for a showdown on the issue in U.S. Bankruptcy Court.

Thousands of Delphi union workers were employed by GM before it spun off Delphi. There are presently 24,000 UAW workers and 12,000 union retirees at Delphi.

While the $11 billion liability is a worst case scenario for GM, the zero liability is the best case eventuality for the world’s largest automaker. GM says the company "is not presently able to estimate the amount, if any, it may ultimately pay under the benefit guarantees."

With North American losses mounting, GM is trying to win health care concessions from the UAW. Financial analysts don’t think GM is in a position to provide direct financial assistance to Delphi.

Delphi's hourly pension, health care and other retiree costs were underfunded by $10.4 billion at the end of 2004. With its union contracts, Delphi pays for the health care costs of 109,400 active hourly workers, retirees and their families.

GM estimates Delphi owes it about $1.2 billion. That will most likely be money down the drain now that Delphi doesn't have to pay all its bills. Delphi employs 185,000 people worldwide.

Delphi, the nation's largest auto parts supplier, builds everything from car batteries and brakes to stereo systems and XM Satellite radio systems. The company is certain to attempt to renegotiate both its union contracts and its deals with its customers such as GM. Last year, GM accounted for $15.4 billion, or 54%, of Delphi's total sales of $28.6 billion.

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