DETROIT - Watch out Detroit, you could be next.þþThat is the warning for domestic automakers from Robert S. Miller Jr., the straight-talking chief executive of Delphi, who took his company, the nation's biggest maker of auto parts, into bankruptcy protection last weekend.þþIn an interview on Monday with reporters and editors at The New York Times, Mr. Miller, who uses Steve as a first name, predicted that General Motors and the Ford Motor Company could find themselves following Delphi into bankruptcy court in the next few years unless they take drastic steps to reduce their own labor costs. Mr. Miller said his company would do what it could to prevent more bankruptcies in the industry. þþBut Mr. Miller, sounding like the Oracle of Delphi, made clear that he believed that the major auto companies were now engulfed in the same industrial turbulence that had forced the revamping of the steel and airline industries with which he was intimately familiar.þþÿThis is not just a Delphi issue, this is an auto industry issue,ÿ Mr. Miller said, ÿand has to be dealt withÿ by G.M., Ford and Chrysler, a division of DaimlerChrysler. ÿI am very concerned about what happens to the Big Three. It is an incredible watershed for the entire industry as we head into the future.ÿþþGiven Mr. Miller's track record at companies like Bethlehem Steel, Morrison-Knudson and Federal-Mogul and his status as a director at UAL, the parent of United Airlines, his words need to be heard, said Michael Useem, a professor at the Wharton School of Business at the University of Pennsylvania.þþÿIf he has concluded the problems of Delphi are endemic to the industry,ÿ Mr. Useem said, ÿthat would say, 'pay attention.' ÿþþMr. Miller vowed to inflict ÿminimal collateral damageÿ on G.M. ÿWe need them as a customer,ÿ he said. ÿI shudder at the thought that the collapse of Delphi would trigger the collapse of G.M,ÿ adding that he did not think G.M. was in imminent danger of bankruptcy.þþBut Mr. Miller made it clear that Delphi would shrink severely. He said that by the end of the bankruptcy, the company, which has annual sales of about $28 billion a year, could end up with around $20 billion. He cautioned that the figure was only a rough estimate.þþMost in danger are plants producing basic parts that can be built more cheaply overseas, he said, while Delphi wants to protect those that make complex components like instrument panels and electronic systems.þþDelphi, a division of G.M. until 1999, sought bankruptcy protection in federal court in New York on Saturday, in the largest Chapter 11 filing in the history of the automobile industry. þþG.M. represents roughly half of Delphi's business, and about 4,000 Delphi workers have the right to return to G.M., meaning that the company would be responsible for their wages and benefits, including pension and health care costs, on top of its own liabilities. þþG.M. has estimated that its cost from a Delphi bankruptcy could be as much as $11 billion. Today, G.M. shares fell $2.81, to $25.48, in the first day of trading after the filing.þþDelphi's decision to seek bankruptcy protection came after the company held weeks of negotiations on a rescue plan with both G.M. and the United Automobile Workers union, which represents 34,000 workers at Delphi plants in the United States. þþOn Saturday, the union's president, Ron Gettelfinger, denounced Delphi's move as an ÿextremely bitter pillÿ and vowed to protect workers' interests. Mr. Miller, however, said he believed that U.A.W. officials would be realistic about the problems he faced in turning Delphi around. þþÿThe union knows that life is changing and all we've been debating is at what speed do these changes take place,ÿ Mr. Miller said. þþThe Delphi situation puts intense pressure on G.M. to win cuts from the U.A.W. in the next set of contract talks, scheduled for 2007. ÿIf they come to a contract that is the same as they have now, they're finished,ÿ Mr. Miller said.þþThat makes the result at Delphi even more critical, said Martin King, an auto industry analyst with Standard & Poor's. Yesterday, S.& P. cut its rating on Delphi's debt to D for default. þþÿThis is a unique event,ÿ Mr. King said of Delphi. ÿIt's clearly going to have implications for companies other than Delphi.ÿþþIn one nod to the U.A.W., Mr. Miller said Delphi would not seek emergency pay and benefit cuts, called interim relief, which bankruptcy law allows if a company can prove it cannot survive otherwise. þþInstead, Mr. Miller said Delphi would try to negotiate cuts with the U.A.W. before asking a judge for permission to set aside union contracts and impose lower wage and benefit rates. þþOver the weekend, Delphi said that it wanted to conclude those discussions by mid-December. Otherwise, the company is prepared to ask that contracts be terminated and seek a court hearing by mid-January.þþIf no deal can be reached, a judge can impose the cuts, and the U.A.W. can strike at Delphi. But Mr. Miller said he did not believe U.A.W. officials would allow that.þþÿI believe they are realistic and responsible people and they do not want to risk the chaos that will come from rejection,ÿ Mr. Miller said. A spokesman for the U.A.W. did not return calls seeking comment.þþNearly every union at airlines that have filed for bankruptcy this decade agreed to wage and benefit cuts, rather than have them imposed. Once in bankruptcy, many companies also move to terminate their retirement plans and replace them with less-generous programs, a step taken by United Airlines and US Airways.þþOn Monday, Mr. Miller said he intended to work with the union to try to preserve Delphi's pension plan, which like those at the American auto companies is severely underfunded. þþBut Mr. Miller made it clear that U.A.W. members - whose compensation is worth $65 an hour including wages and benefits such as pensions and health care - would have to give up something else to keep their plans. He also said that any deal must ensure Delphi's eventual profitability to enable the company to survive over the long run.þþDelphi officials say they may aim for wages and benefits of $20 to $25 an hour, similar to what is paid at other parts makers in the United States.þþMr. Miller said that in bankruptcy, Delphi would be able to sharply reduce a big contribution to its pension plans that is coming due next year. þþBefore it filed for bankruptcy, Delphi said that it would have to put $1.1 billion into its employee pension fund in June 2006; it has borrowed money for that purpose. But Mr. Miller said that he believed the bankruptcy code allowed Delphi to reduce the size of the contribution to $160 million. The remaining $1 billion ÿcan be paid later,ÿ he said. He said he expected no objection from the lenders. It was not clear, however, whether federal regulators would accept that approach. By law, companies that promise pensions are required to set aside enough money to pay them, following a predetermined schedule. Skipping or unilaterally reducing pension contributions can sometimes bring on an enforcement action. þþIn the end, Mr. Miller said, the U.A.W., led by Mr. Gettelfinger, faces some difficult choices trying to do the best it can for current workers and retirees.þþÿIf the union says, 'No, I don't want to give on wages and benefits' and we come to some kind of compromise where we are breakeven instead of profitable, then you can kiss the pension plan goodbye,ÿ Mr. Miller said.þþÿThis is a trade-off,ÿ Mr. Miller said, ÿnot because I wanted to put Ron Gettelfinger on the hot seat. He is on the hot seat. I can't solve it. I can't protect what everyone wants to have.ÿþþ
Source: NY Times
