Delphi warned to stop losses or shut plants

By Don Shilling

Delphi is considering transferring a pension plan to GM.

Two major creditors say Delphi Corp. should shut down its North American operations if it can’t stop losing money.

Delphi’s “staggering” losses in North America are dragging down the rest of the company, said two companies that hold Delphi debt, CR Intrinsic Investors of Stamford, Conn., and Highland Capital Management of Dallas. Delphi’s foreign operations, which are not in bankruptcy, are profitable, the creditors said.

Without a better plan to stop its losses, the North American operations should be closed “without delay,” the companies said in an Aug. 27 letter to the Delphi board of directors. The letter was released in a filing the auto parts supplier made last week with the Securities and Exchange Commission.

A Delphi spokesman could not be reached for comment.

In other news, the Associated Press said Delphi has until today to transfer its pension plans for hourly workers to its former parent, General Motors Corp., or the government’s pension insurer says it plans to file a claim for another $900 million of Delphi’s assets.

The PBGC already has filed $1.6 billion in liens against Delphi’s foreign subsidiaries. Jeffrey Speicher, a PBGC spokesman, said Thursday that the agency is waiting to file the $900 million lien after hearing that the companies were negotiating a possible agreement.

Mike O’Donnell, a union official at Delphi Packard Electric in Warren, said the creditor’s letter wasn’t a surprise.

“We’ve been told the creditors are running out of patience, but we don’t have a lot of additional information,” he said.

Orders for locally produced parts have been so slow that Packard recently announced it would close its Cortland plant, which was opened in 2000 after a $42 million renovation. Hourly employment in the area is expected to remain at 750 as the Cortland workers are shifted to other plants, O’Donnell said.

Packard has slashed its hourly employment from 3,800 since its parent company filed for bankruptcy protection in 2005. A slimmed-down Delphi, however, hasn’t been able to pull together the financial backing to emerge as a stand-alone company.

As U.S. auto sales slump, the company’s North American operations “burn cash at an alarming rate,” the creditors said. In the first half of this year, Delphi posted a $500 million loss.

The creditors protested a Delphi plan to rely on General Motors, its main customer and former parent company, to provide $300 million in financing as Delphi lingers in bankruptcy. They said it was unfair to give GM a legal claim against Delphi’s assets because that hurts their ability to recover money in the case.

GM is benefiting in the case because Delphi is selling products to the automaker at unprofitable prices, the letter says.

It adds the Delphi should be looking to save money through union negotiations, exiting unprofitable businesses, rejecting unprofitable contracts and negotiating higher prices from customers, including GM.

Delphi needs to get its business affairs in order before it seeks for outside financing, the letter says.

In 2006, Highland Capital made a bid to take Delphi out of bankruptcy, but an offer by Appaloosa Management was chosen instead. Appaloosa withdrew its offer when the U.S. auto industry turned down.

shilling@vindy.com