February 18, 2009 - Big Three Auto Suppliers

Delphi Benefits Cut for 15,000 retirees

Update February 25, 2009

Auto suppliers face a lose-lose situation

General Motors Corp. and Chrysler LLC's plans to the government call for either cutting the number of suppliers or demanding more price cuts.

Both would mean a hit for suppliers already pressured by price cuts and falling production.

GM plans to shed 480 suppliers, or 30% of its 1,600 parts suppliers in North America, as it tries to send more business to healthier suppliers. GM's plan also paints a dire picture for the pension plans of Delphi Corp.

Chrysler seeks a 3% price reduction from its suppliers starting April 1 and through other measures is looking for a total of $150 million in savings through supplier concessions in 2009.

Both automakers acknowledge that their supply bases are in financial trouble.

For that reason, both automakers support some sort of government-funded plan to help suppliers survive the next few months.

"That's very, very important because the car companies cannot function without the suppliers," said Wilbur Ross, chairman of International Automotive Components Group, a Dearborn-based automotive interiors supplier.

Typically, automotive supplies don't get paid for the parts they deliver for at least 45 days. That, Ross said, in an interview with the Free Press, means about 15% of a supplier's annual revenue is outstanding at any time and forces suppliers to pay for production with loans or credit lines that are difficult to get in a frozen credit market.

A failing supply base, where each supplier sells to several automakers, could derail restructurings at GM and Chrysler. "If they do have a good plan with the bondholders, and if they do have a good plan with the labor, the one thing that could screw them up is suppliers," Ross said.

As for Delphi, GM's largest supplier, the automaker plans to buy some factories back from its former parts arm. But GM said it's not responsible for taking on Delphi's salaried pension plan or, in most cases, the hourly pension plans.

"Delphi is unlikely to be able to support these underfunded pension plans going forward and may need to terminate these plans, which would impact the PBGC," GM said in its restructuring plan. (The Pension Benefit Guaranty Corp. is a government agency that picks up a portion of pensions if a company defaults.)

Delphi spokesman Lindsey Williams said, "We continue to work toward preserving the accumulated pension benefits of our employees."

Original Story - Detroit Free Press

Update February 25, 2009

Delphi can trim salaried retiree benefits, judge says

A bankruptcy judge said Tuesday that Troy-based supplier Delphi Corp. has the right to terminate health care and life insurance benefits for 15,000 salaried retirees, which the company plans to do at the end of March.

But U.S. Bankruptcy Judge Robert Drain also said during a hearing Tuesday that a committee of retirees should be formed to determine whether any of Delphi's salaried retirees were promised lifetime benefits and would be eligible for continued company-sponsored coverage.

Drain delivered the decision after witnesses for Delphi testified the cuts were vital to the survival of the company.

"Over the last two or three months, their business has gone through such enormous adverse changes," Drain said.

More than 1,500 objections were filed by workers.

In letters to Drain, retirees raised several concerns.

Some worried that retirees wouldn't be able to find affordable health insurance elsewhere if they have existing conditions such as cancer and diabetes.

"I'm 55 and I've had prostate cancer as well as diabetes and high blood pressure. I'm afraid that I'm probably in that uninsurable category," said Milton Beach of Kokomo, Ind.

Said Beach, whose job at Delphi was eliminated: "I have 10 years to go before I get to 65 and would qualify for Medicare. That's a long time to pay those kinds of prices for health insurance on a fixed income."

Next, a committee of retirees will be formed to determine whether there is any evidence that retirees were promised lifetime benefits, said Jon Cohen, of Stahl, Cowen, Crowley Addis in Chicago, a law firm that represents about 1,200 retirees.

"It's expected that the retiree committee is going to call upon all the retirees for their assistance to help them locate historic retiree benefit documents," Cohen said. "That's what the judge wants to see."

The committee has until March 11 to present its findings to the judge.

Delphi, which has been reorganizing in Chapter 11 bankruptcy since October 2005, has said in court filings that eliminating health care and life insurance benefits for current and future salaried retirees would save the company more than $200 million through 2011.

It also would take more than $1.1 billion in liabilities off of Delphi's balance sheet, a move that could help the supplier attract the financing it needs to leave bankruptcy protection.

Delphi's bankruptcy lenders "have made it very clear that the company has a fiduciary duty to terminate the benefits," Delphi's lawyer, John Butler Jr., told the judge. "They simply will not support having discretionary liabilities of this magnitude on the reorganized balance sheet."

Update Story - Detroit Free Press