Delphi's bankruptcy may make it harder for Rick Wagoner, chief executive of the auto-parts maker's former parent General Motors (GM), to...
Delphi’s bankruptcy may make it harder for Rick Wagoner, chief executive of the auto-parts maker’s former parent General Motors (GM), to deliver on his primary goal: cutting GM’s health-care costs.
Delphi’s filing two days ago might add as much as $11 billion to GM’s retirement costs if the automaker has to meet a 1999 promise to guarantee Delphi pensions, GM said. The bankruptcy may complicate ongoing health-care talks between GM and the United Auto Workers union, said Sanford C. Bernstein & Co. analyst Brian Johnson.
“GM and the UAW will collide at some point as the company’s results worsen,” Merrill Lynch’s John Casesa, the No. 3 ranked auto analyst by Institutional Investor, said in a report to clients yesterday. “The Delphi filing suggests that it will happen sooner rather than later.”
Since identifying health-care costs as a source of “crisis” in January, Wagoner has had to contend with a decline in credit ratings to high-risk, high-yield junk, billionaire Kirk Kerkorian’s announcement that he may want a GM board seat and a decline in U.S. sales and market share that was only temporarily halted by offers of employee discounts to all buyers.
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Standard & Poor’s lowered its corporate-credit rating on GM to three levels below investment grade. The ratings company said that Delphi’s filing may impede GM’s efforts to revive its North America auto operations. Moody’s Investors Service said yesterday that it is reviewing GM’s debt for a possible downgrade.
Delphi’s bankruptcy increases the odds that GM itself may file for court protection to 30 percent from 10 percent previously, said Ron Tadross, a Banc of America Securities analyst. The filing may raise GM’s retirement liabilities by $6 a share and increase the potential for a confrontation with the UAW, Tadross said in a note. He cut his rating on GM to “sell” from “neutral.”
“The company ultimately needs to shrink,” said John Novak, analyst at Morningstar in Chicago. “The question is, can they do that in or outside of court?”
General Motors’ stock declined $2.81, or 9.9 percent, to $25.48 yesterday. Delphi shares plunged 79 cents, or 71 percent, to 33 cents.
GM already estimates its health-care bill will be $5.6 billion this year, not counting any Delphi costs. Health expenses add about $1,525 to the cost of each car the company builds.
At the same time, Delphi, which was spun off from GM in 1999, has been seeking $6 billion in aid from the automaker that Delphi hoped would help it avert bankruptcy. Delphi sought Chapter 11 court protection in New York on Oct. 8.
“How can shareholders have confidence that GM can advise Delphi on how to get out of its mess, when GM is incapable of getting out of the mess it’s in itself?” said Eugene Jennings, a business professor emeritus at Michigan State University. GM has trimmed 80,000 employees, including 39,000 in North America, since Wagoner became chief executive in June 2000. U.S. market share fell to 26.6 percent through September from 28.1 percent in 2000. At the same time, GM’s stock-market value has fallen to $16 billion, almost 50 percent below the $31 billion level of 2000.
Wagoner in April reassigned two top lieutenants and took on responsibility for ending losses in North America, which total $2.8 billion this year. He promised to cut costs at plants and use new models to regain buyers who are defecting to cars and trucks from rivals such as Toyota, Nissan and Hyundai.
Wagoner in June said he might have to seek health-care cuts without the unions’ cooperation.
“I think GM is making it harder for the UAW to resolve their own health-care issue by letting Delphi file for bankruptcy,” said Art Baker, chairman of UAW Local 652 in Lansing, Mich.
GM’s costs, including health care, will probably increase because the company will be forced to take back Delphi workers and factories to protect the flow of critical parts, Baker said.
to restate earnings
Auto-parts maker Dana said yesterday it will restate its earnings for the last six quarters to fix improper accounting and will withdraw its profit forecast for 2005, sending its stock tumbling for the second time within a month.
This comes just weeks after Dana said it was cutting its profit outlook for this year in half.
Dana, which earlier had reported profit of $82 million for 2004, did not say how much earnings will be affected. It also will delay its third-quarter earnings announcement, which was scheduled for this week.
The FBI and the Securities and Exchange Commission have been investigating Delphi’s accounting practices for several months. Delphi already had restated its earnings for the last five years after conducting an internal investigation.
The company’s stock fell $3.15, or 34 percent, to close at $6.04 yesterday.
The Associated Press