Showdown at Delphi
Production employees at Delphi Corp.'s two plants in Oak Creek have threatened to strike if a federal judge sets aside existing contracts between the company and the unions.
A memo distributed by the United Auto Workers union to employees at the Oak Creek factories states that the union "must and will take to the streets if necessary."
"Delphi must be held accountable," the memo states.
The memo, which was obtained by The Business Journal, says the production work force is "in the fight our lives" as a result of Troy, Mich.-based Delphi's Oct. 8 filing for Chapter 11 bankruptcy protection. Troy, Mich.-based Delphi, the largest auto supplier in the nation, has about 1,500 workers at two plants in Oak Creek.
Delphi's 31 American plants, including those in Oak Creek, are in a fight for their own lives. The company's bankruptcy plan will be designed to resolve the "high-cost structure" of Delphi's U.S. operations, states a memo distributed Oct. 8 to employees from chief executive officer Robert "Steve" Miller.
"This will require a substantial segment of our U.S. manufacturing operations to be divested, consolidated or wound down through the Chapter 11 process," Miller said.
How the plan will affect the Oak Creek plants isn't clear at this point and company management isn't releasing details of its reorganization plan.
Miller has stated in media reports that the plants most in danger of being shuttered are those that produce basic automotive parts that can be manufactured overseas.
The Oak Creek factories make sophisticated products and are "relatively modern and well-organized," said Randal Middleton, president and business manager of the International Brotherhood of Electrical Workers Local 663, which represents about 110 employees in Oak Creek. Delphi management also has told the union that the Oak Creek plants are profitable, he said.
"It's too early in the process to determine the impact on individual plants," company spokesman Lindsey Williams said.
Drastic concessions
The union's rejection of drastic concessions sought by Delphi management on the eve of the bankruptcy filing played a part in the company's decision to file its Chapter 11 petition.
Delphi management has requested that a federal judge set a two-month deadline for obtaining major concessions from its unions and retirees, according to bankruptcy documents filed in U.S. Bankruptcy Court in New York. Delphi is expected to make offers to its union by Oct. 21. If no agreements are reached by Dec. 16, the company is expected to request that the court terminate the existing contracts by Jan. 17, 2006.
If the contracts are set aside, the unions will no longer be bound by a "no strike" provision in the existing agreements, paving the way for a work stoppage.
"The unions collectively would have to do something," Middleton said.
Delphi management has assured its customers that it will comply with their production schedules during the reorganization period, company spokesman Williams said.
"We do have contingency plans in the event of labor unrest at the plants," he said. "We're hopeful we can reach an agreement."
The "laundry list" of demands and concessions that Delphi management has sought from the unions is "almost insurmountable," Middleton said.
The demands include wage reductions to as low as $10 to $12 an hour, which represents pay cuts of 55 to 65 percent for production employees.
"How do you make a house payment with 60 percent less?" Middleton asked.
Other concessions sought by Delphi include a reduction in vacations and paid holidays; eliminating summer shutdowns; and reduction in health care benefits.
Pension concerns
Production employees at the Oak Creek plant are concerned about their pensions now that Delphi management has positioned the company's pension plan as a "cost burden," Middleton said. Pensions would be based on the reduced wage levels being sought by Delphi management.
The majority of workers at the Oak Creek plants are represented by the United Auto Workers. UAW Local 438 represents about 830 employees at Delphi's electronic systems division in Oak Creek, where engine control modules are produced. UAW Local 1866 represents workers at Delphi's catalytic converter production operations. The number of employees represented by Local 1866 wasn't immediately available.
Representatives of Local 438 and Local 1866 didn't return calls seeking comment.
Ron Gettelfinger, UAW national president, issued the following statement:
"Over the past several months, the UAW has engaged in discussions with Delphi to craft a mutually agreeable approach to the company's financial problems that would have enabled Delphi to avoid filing for bankruptcy. We made it clear to Delphi that we were willing to continue discussions and to consider a wide range of options. However, from the outset of talks about a possible bankruptcy filing, Delphi made it clear that the UAW alone could not solve the company's problems."
The memo from Miller states that the company has requested authorization from court to continue to pay wages, salaries and benefits as the company reorganizes.
The Business Journal's Rich Kirchen contributed to this story.
Delphi suppliers scramble for payment advice
Delphi Corp.'s decision to file Chapter 11 reorganization has caused the firm's Wisconsin suppliers to scramble for legal advice to protect their financial interests.
Several Milwaukee bankruptcy attorneys said they are working on behalf of clients who are suppliers to Delphi, which filed Chapter 11 Oct. 8. The attorneys declined to identify their clients.
However, Delphi suppliers in the Milwaukee area include Strattec Security Corp., Glendale, Grede Foundries Inc., Wauwatosa, and other smaller manufacturers.
The only Wisconsin-based supplier listed by Delphi as one of its top 50 creditors is Waupaca Foundry Inc., in the Fox Valley community of Waupaca. The firm was owed $4.7 million at the time of the bankruptcy filing.
Delphi has filed a motion seeking a court order authorizing payments to "essential suppliers." The motion did not identify any of those suppliers by name. The goal is to enable the company to continue manufacturing and providing products to its customers, the largest of which is General Motors Corp.
Suppliers who are deemed essential and who refuse to supply Delphi could face a court order to force them to work with Delphi.
"Everything in this case is about maintaining the supply line," said Randall Crocker, a Milwaukee bankruptcy attorney.
The suppliers who are most at risk of losing money are those who Delphi hadn't paid for products delivered before or at the time of the bankruptcy filing, Crocker said. Those suppliers can petition the Bankruptcy Court for payments of any breaches in their contracts with Delphi, he said.
Suppliers would have been in a stronger position if Delphi had filed for Chapter 11 after the Oct. 17 enactment of the Bankruptcy Abuse Prevention & Consumer Protection Act, attorneys said. Many claims for payment from Delphi will be unsecured under the current law and would have been secured if Delphi filed after Oct. 17.
John Cowden, chief financial officer of Waupaca Foundry, said the company so far has been receiving payments from Delphi. The foundry makes brake rotors for Delphi.
In advance of the bankruptcy, Waupaca Foundry bought a financial instrument that hedges against Delphi defaulting on payments, Cowden said. He declined to be more specific, but said the foundry plans to continue "business as usual" with Delphi.
"We see Delphi as an ongoing entity to us and we will continue to work with them as best as we can," Cowden said.
Big customer
Management at Strattec, which makes automotive lock systems, is holding discussions with Delphi, but cannot disclose any further information, said Strattec chief executive officer Harold Stratton.
In its 10-K annual report, Strattec listed Delphi as one of its biggest customers, accounting for 15 percent of Strattec sales, or about $29.6 million, during fiscal 2005. Strattec management noted that any financial problems or cutbacks at key customers including Delphi could have "a significant impact on the company's future sales and collectibility risks."
Grede Foundries chief executive officer Bruce Jacobs could not be reached for comment.
The Delphi bankruptcy is expected to lead to another round of automakers and their tier-one suppliers like Delphi demanding cost cuts of lower-level suppliers. That trend will trickle down to suppliers in the Milwaukee area.
Res Manufacturing Inc., a metal stamper on Milwaukee's northwest side, relies on the automotive industry for more than half its revenue with about 2 percent coming from Dephi. Res president John Ormerond said his company has made great strides in improving its efficiency and cutting costs, but knows it's a never-ending quest in selling to automakers and first-tier auto suppliers like Delphi.
"It's hard to imagine them squeezing any more, but they'll try," he said.
-- Rich Kirchen
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