Restructuring at Delphi Corporation: A Case Study

Nate B.

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Restructuring at Delphi Corporation: A Case Study

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Abstract

Since the 1999 spin-off from General Motors, Delphi Corporation has faced some severe challenges. A combination of increased commodity prices, increasing OPED liabilities, uncompetitive labor costs, and loss of market share from the US automakers, has led them to become the largest industrial organization ever to file for chapter 11 protections. What key changes will need take place after reorganization for the Delphi Corporation to come out of Chapter 11 Bankruptcy to sustain long term growth and profitability in a global market, independent from the success of the big three?

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[...] In June of 2007, as a part of preparing to leave bankruptcy, Delphi signed a comprehensive “Labor settlement Agreement” with the UAW and GM. o Seventeen of Delphi's 21 UAW manufacturing sites in the U.S. would be sold, transferred to third parties, or shut down. o Delphi's hourly pension plan would be frozen, and it's OPEB plans would be terminated. o Some of the reduction in pension and OPEB plan benefits would be made up by GM under the “Benefit Guarantee” created during the 1999 spin-off. [...]

[...] In September 2007, Delphi and GM entered into a “Master Restructuring Agreement” and the “Global Settlement Agreement.” The MRA specified the terms of future business dealings between the two firms, including issues around pricing, and GM's ability to buy from alternative suppliers, and Delphi's ability to bid for new GM business on preferred terms. The GSA reaffirmed each firm's responsibility under the Labor Settlement Agreements, as well as GM's obligation to reimburse Delphi for its payments to workers under the early retirement and buyout plans. [...]

[...] They will have to look to countries like Mexico for lower labor costs and with the NAFTA in place it will allow them produce a product of like kind and quality at a much lower price that will allow Delphi to achieve a number of different outcomes. First they will be able to avoid lengthy labor contracts with unions and adjust to fluctuations in the demand of their product from automakers. Secondly it will allow them adjust to increases in the cost of raw goods, and allow them to produce a quality product at a globally competitive price. [...]

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