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| Delphi
Ouitlines Transformation Plan
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| News Source : Delphi
Corporation |
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Troy, Michigan, Mar 31 2006 (Korea
Newswire)-- Delphi Corp. (OTC:DPHIQ) today outlined its
strategy to prepare for its return to stable, profitable
business operations through a broad-based global
restructuring in order to complete the Chapter 11 cases for
Delphi and 41 of its domestic U.S. subsidiaries in the first
half of 2007 as previously announced. Delphi’s
transformation plan is intended to allow the company to
become competitive in the global marketplace.
“We are clearly focused on Delphi’s future,” said Delphi
Chairman and CEO Robert S. “Steve” Miller. “Emergence from
the Chapter 11 process in the U.S. requires that we make
difficult, yet necessary, decisions. To complete our
restructuring process, we must focus on five key areas.
First, we must modify our labor agreements to create a
competitive arena in which to conduct business going
forward. Second, we must conclude our negotiations with
General Motors to finalize its financial support for the
legacy and labor costs we currently carry and to ascertain
its business commitment to Delphi going forward. Third, we
have to streamline our product portfolio to capitalize on
our world-class technology and market strengths and make the
necessary manufacturing alignment with our new focus.
Fourth, we must also transform our salaried workforce to
ensure that our organizational and cost structure is
competitive and aligned with our product portfolio and
manufacturing footprint. And fifth, we must devise a
workable solution to our current pension situation, whether
it is to stretch out pension payments or develop an
alternate solution. We are mindful of the impact the
implementation of this plan will have on some of our
stakeholders, including our employees and communities, yet
ultimately, these actions will result in a stronger company
with future global growth opportunities.”
Court Motions Underscore Determination to Achieve
Competitiveness
While there has been recent progress in discussions with the
company's unions and GM, particularly on the U.S. Hourly
Attrition Programs, the parties have not yet reached
comprehensive agreements. Consequently, Delphi will be
filing two motions later today: its motions under Sections
1113 and 1114 of the U.S. Bankruptcy Code seeking authority
to reject U.S. labor agreements after ten days’ notice to
the unions and to modify retiree benefits, and its initial
motion to reject unprofitable supply contracts with GM. The
Section 1113 and 1114 filing is consistent with the
scheduling order signed by the Bankruptcy Court on February
17, 2006.
A hearing on the Section 1113 and 1114 motion has been
scheduled for May 9 and May 10. The Court has provided a
five-week time period between the filing of the motion and
the Court hearing (rather than the 14 day period called for
in the Bankruptcy Code) so that Delphi and its unions can
continue working on consensual agreements before the
hearing. The Court also directed the parties to promptly
"meet and confer" to resolve the motion.
“We are greatly encouraged by the progress our negotiations
have made to date," said Miller. "Our proposed U.S. Hourly
Attrition Programs and labor proposals are designed to
mitigate sudden financial impact on our hourly employees.
The Special Attrition Program implements phased-in
retirement opportunities, some with financial incentives,
and provides 5,000 UAW-represented employees the opportunity
to work at GM. In labor proposals, we have offered, subject
to implementation of our transformation plan including GM
support, buyout payments for employees who are not eligible
for retirement of $140,000 for employees with ten years of
service and $70,000 for less senior employees. We have also
increased our wage proposal for current employees to $22 per
hour (from $12.50 in our proposals last fall) through
September 3, 2007. At that point, wages would be reduced to
$16.50 per hour for existing employees but they would
receive a $50,000 “wage buydown” payment. While our Court
filings are necessary procedural steps to enable action that
may become necessary at some point in the future, we are
singularly focused on reaching a consensual resolution with
all of our unions and GM before any court hearing is
necessary."
Commenting on Delphi's current unprofitable supply contracts
with GM, Miller said, “We need GM to cover a greater portion
of the costs of manufacturing products for GM at plants that
bear the burden of our legacy costs. We simply cannot
continue to sell products at a loss." The company said that
the initial GM contract rejection motion covers less than
ten percent of GM's contracts as listed in the statements
and schedules filed on January 20, 2006, and approximately
half of the North American annual purchase volume revenue
from GM. Delphi expects this motion to be heard at the May
12 omnibus hearing, which is scheduled with 42 days’ notice
(rather than the 20 days notice provided for by the Court's
case management order) to facilitate continued negotiations
between Delphi and GM. The company said that it also
delivered a letter to GM today initiating a process to reset
the terms and conditions for more than 400 commercial
agreements that expired between October 1, 2005, and March
31, 2006. The company said that the renewal of expired and
expiring commercial contracts on acceptable terms and
conditions to Delphi does not require Bankruptcy Court
approval. The company also assured GM that Delphi would not
unilaterally revise the terms and conditions on which Delphi
was providing interim supply of parts to GM in connection
with the expired contracts or file additional contract
rejection motions prior to May 12 so long as GM did not
initiate re-sourcing or other hostile commercial initiatives
against Delphi.
Miller emphasized: “Our message to our hourly workforce and
GM is clear: Delphi remains committed to finding a
consensual resolution to our issues and intends to continue
to discuss with our unions and GM ways to become competitive
in our U.S. operations. Even if it becomes necessary to
complete the hearings on the motions being filed today and
the company obtains the relief requested in these motions,
Delphi will not immediately impose all of the relief sought
in the motions. We intend to work with our unions and GM but
at the end of the day Delphi must be competitive in the
global marketplace."
“Our fiduciary duty as the management team and the Board of
Directors at Delphi is to protect the value of the estate.
We need to take the steps necessary to halt losses that
continue to occur at an unsustainable rate and transform our
business. Although today's court filings are necessary to
protect our businesses, we have not left the negotiating
table. We have made considerable progress in recent weeks,
and we intend to stay at it until we are finished,” Miller
said. Consistent with its prior practice, the company said
it will not comment further publicly about the status or
substance of its discussions with GM or its unions while the
discussions are ongoing.
Growth and Technology Leadership Foundation of Future
Product Portfolio
Delphi said in addition to improving operating efficiencies
and reducing its overall cost-structure, it plans to focus
its product portfolio on those core technologies for which
Delphi has significant competitive and technological
advantages and expects to provide the greatest opportunities
for increased growth and profitability. The company does not
expect the portfolio changes to have a significant impact on
Delphi’s independent aftermarket or consumer electronics
businesses. Delphi will continue to offer advanced
technology and OE quality parts and service. Similarly, it
does not expect an impact on medical, commercial vehicles or
other adjacent-market businesses and product lines.
Rodney O’Neal, president and chief operating officer, said
Delphi will concentrate the organization around the
following core strategic product lines:
· Controls & Security (Body Security, Mechatronics, Power
Products and Displays)
· Electrical/Electronic Architecture (Electrical/Electronic
Distribution Systems, Connection Systems and Electrical
Centers)
· Entertainment & Communications (Audio, Navigation and
Telematics)
· Powertrain (Diesel and Gas Engine Management Systems)
· Safety (Occupant Protection and Safety Electronics)
· Thermal (Climate Control & Powertrain Cooling)
O'Neal said that these core businesses are where Delphi’s
technical strength can provide the greatest support and
differentiation to its customers in automotive, aftermarket,
consumer electronics, and adjacent markets such as
commercial vehicles, medical systems, computers and
peripherals, military/aerospace, telecommunications,
commercial, residential, and transportation products.
As part of the transformation plan, the company has
identified the following U.S. manufacturing sites as its
core automotive facilities in the United States:
· Brookhaven, Mississippi
· Clinton, Mississippi
· Grand Rapids, Michigan
· Kokomo, Indiana
· Lockport, New York
· Rochester, New York
· Warren, Ohio
· Vandalia, Ohio
To achieve profitability and become competitive, these
locations must implement productivity enhancements, product
line restructuring and workforce reductions.
“We will allocate our capital and resources into a focused
product portfolio, especially where our customers demand
technologies that distinguish their products from the
competition,” said O’Neal. “Our emphasis will be on products
with greater electronics content, precision manufacturing
and complex, complete systems for our diverse customer
base.”
Delphi will maintain its commitment to technology
development, and plans to continue investing more than seven
percent of annual revenue into the development of future
products in these and adjacent growth markets. O’Neal said,
“Stability is key to our customer programs. Just as we have
maintained supply to our customers during these Chapter 11
cases, we will work to ensure that our transformation is
seamless and transparent.” O’Neal also said that there must
be significant changes at many of the company’s remaining
operations, including reduction in non-core support
operations, implementation of more productive work
practices, subcontracting, and other initiatives intended to
achieve future success and profitability.
Non-Core Product Lines and Plants
O’Neal also identified non-core product lines that do not
fit into the company’s future strategic framework and said
that the company will seek to sell or wind-down these
product lines. He emphasized that any sale or wind-down
process will be conducted in consultation with the company's
customers, unions and other stakeholders to carefully manage
the transition of affected product lines. He also said that
the disposition of any U.S. operations would be accomplished
in accordance with the requirements of the U.S. Bankruptcy
Court. The company also will begin consultations with the
European Works Councils in accordance with applicable laws.
"Non-core product lines include Brake & Chassis Systems,
Catalysts, Cockpits and Instrument Panels, Door Modules and
Latches, Ride Dynamics, Steering and Wheel Bearings. We
believe many of these product lines have the potential to
compete successfully under new ownership that has the
resources and capital to invest in them,” O’Neal said. In
order to align Delphi's manufacturing footprint with its
core businesses and competitive restructuring initiatives,
the company said that it intends to sell or wind-down
approximately one-third of its global manufacturing sites
over time as part of the transformation plan.
Separately, O’Neal added that in the case of Delphi
Steering, the division has solid technology and a diverse
customer base. Delphi recognizes that Steering is a
strategic business, but will explore the possibility of
potential sale and alliance opportunities that could make
the division even stronger and better able to serve its
customers.
"These were difficult decisions, because Delphi has been in
some of these businesses for decades,” O’Neal said. “These
product lines offer valuable technology with dedicated and
talented employees. Exiting them will help us become a
focused company, and any sale proceeds would also maximize
estate value - another important element for resolving our
restructuring process in the U.S.”
O'Neal said that the company continually evaluates its
product portfolio and could retain or exit certain
businesses depending on market forces or cost structure
changes. The company said it intends to sell or wind-down
non-core product lines and manufacturing sites by January 1,
2008. Delphi will also begin discussions with certain
governmental agencies whose policies could help improve the
competitiveness of plants and product lines regardless of
whether they are to be retained or offered for sale.
Organizational Restructuring for Salaried Workforce
O'Neal said that the company expects to reduce its global
salaried workforce by as many as 8,500 employees, or 25
percent, as a result of portfolio and product
rationalizations, and initiatives adopted following a recent
analysis of the company’s selling, general & administration
(SG&A) cost saving opportunities. The company believes once
the SG&A plan is fully implemented, Delphi should realize
savings of approximately $450 million per year in addition
to savings realized from competitive measures planned for
its core businesses and the disposition of non-core assets.
“We expect that the portfolio and plant changes will also
require reductions in the number of people required to
support our business, including fewer officers and
executives. Up 40 percent of current corporate officer
positions will ultimately be eliminated,” O’Neal said.
“These changes will be implemented in conjunction with
footprint and portfolio changes as well as other efforts to
improve efficiency and reduce Delphi’s overall cost
structure.” O’Neal emphasized that the transition process
will be orderly and that the company will evaluate
redeployment of salaried employees to available, although
limited, openings within the U.S. as operations are sold or
wound down. O'Neal said that the company intends to utilize
existing salaried separation pay programs as it reduces the
salaried workforce.
In addition to the new organizational plan, which will be
rolled out in the near future, and changes in its pension
plans (discussed below), the company will also change its
salaried benefits to bring them in line with other more
cost-competitive companies. The company stated that it will
restructure the current health care plan to implement
increased employee cost sharing. Adjustments to other
benefits to create a more competitive plan and meet employee
needs will continue to be evaluated. These benefit changes
will be implemented through regular Human Resource channels,
and more information will be provided to all salaried
employees in advance of any changes.
Retention of Defined Benefit Pension Plans for U.S. Hourly
and Salaried Workforce
The company said that one of the goals of its transformation
plan is the retention of existing defined benefit U.S.
pension plans for both its hourly and salaried workforce. In
order to retain the programs and related benefits accrued by
its active employees and retirees, the company said that it
will be necessary to freeze the current hourly U.S. pension
plan as of October 1, 2006, and to freeze the current U.S.
salaried pension plan as of January 1, 2007. The company
emphasized that freezing the plans will not result in a loss
of accrued benefits for any current employee or retiree
participating in the pension plans. The hourly plan (for
employees who are more than seven years from retirement and
not covered by the GM benefit guarantee) and the salaried
plan will be replaced with defined contribution plans that
include flexibility for both direct company contributions
and company matching of employee contributions.
The company said it will also be necessary to obtain relief
from the Pension Benefit Guaranty Corporation, Internal
Revenue Service, Department of Labor and potential
congressional action in order to amortize funding
contributions over a longer period in its transformation
plan than may have previously occurred.
Timeline for Pursuit and Implementation of Transformation
Plan
As outlined by the company at the commencement of its
Chapter 11 restructuring cases in October, 2005, Delphi
expects to complete its U.S.-based restructuring and emerge
from Chapter 11 business reorganization during the first
half of 2007. While elements of its transformation plan are
being implemented by the company, such as the realignment of
Delphi's global product portfolio and manufacturing
footprint to preserve its core businesses and its salaried
workforce reorganization and related SG&A cost savings
measures, other critical elements require consensual
agreements with Delphi's unions, GM and governmental
agencies. Agreements with these parties will ultimately be
subject to the review of the company's stakeholders
including, the official unsecured creditors committee and
official equity committee, as well as the approval of the
U.S. Bankruptcy Court.
Delphi also noted that the execution of its transformation
plan through the Chapter 11 process may give rise to the
incurrence of additional prepetition claims as collective
bargaining agreements, executory contracts, retiree health
benefits and pension plans, and the other liabilities of the
company are addressed and resolved to maximize stakeholder
value going forward. There is no assurance as to what
values, if any, will be ascribed in the Chapter 11 cases as
to the value of Delphi's existing common stock and/or other
equity securities. Delphi has previously reported in filings
with the Securities and Exchange Commission, the U.S.
Bankruptcy Court and the Office of the United States Trustee
that it is highly unlikely that common equity holders will
receive any value in the Chapter 11 cases on account of the
equity securities of Delphi Corporation because of claims
against the parent holding company relating to legacy
liabilities and burdensome restrictions under current U.S.
labor agreements as well as the realignment of Delphi’s
global product portfolio and manufacturing footprint that
must be achieved to preserve Delphi's core businesses.
Delphi noted that this result is in contrast to the value of
Delphi’s non-U.S. subsidiaries, which are not Chapter 11
debtors, are continuing their business operations in the
ordinary course of business without supervision from the
Bankruptcy Court, and are not subject to the Chapter 11
requirements of the U.S. Bankruptcy Code. Accordingly, the
company continues to urge that appropriate caution be
exercised with respect to existing and future investments in
any of these securities as their value and prospects are
highly speculative.
More information on Delphi’s U.S. restructuring is available
at www.delphi.com. Access to Court documents and other
general information about the Chapter 11 cases is available
at www.delphidocket.com. Delphi has also set up two separate
toll-free information lines: one for specific supplier
inquiries, 866-688-8679 or 248-813-2601, and another for
employees, customers, shareholders and other interested
parties, 866-688-8740 or 248-813-2602.
Delphi’s Chapter 11 cases were filed on October 8, 2005, in
the United States Bankruptcy Court for the Southern District
of New York and have been assigned to the Honorable Robert
D. Drain under lead case number 05-44481 (RDD). Information
on the case can also be obtained on the Bankruptcy Court’s
website with Pacer registration:
http://www.nysb.uscourts.gov.
For more information about Delphi and its operating
subsidiaries, visit Delphi’s Media Room at
www.delphi.com/media/.
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