GM in jeopardy as the bleeding worsens at Delphi

David Barkholz

Automotive News | March 9, 2009 – 12:01 am EST


GM in jeopardy as the bleeding worsens at Delphi

Bankrupt Delphi Corp. has stayed afloat on overseas profits and help from former parent General Motors.

With neither of those sources of funds reliable now, Delphi is in jeopardy. That puts GM at risk, too.

"If Delphi runs out of money and has to shut down, GM shuts down, too," said Kirk Ludtke, senior vice president at CRT Capital Group LLC in Stamford, Conn.

Ludtke said federal aid is Delphi’s best hope against Chapter 7 liquidation. He reasons that Delphi and GM need each other to survive. So for GM to operate, it must get billions of dollars of additional federal aid and make sure Delphi gets a piece of that action.

GM’s viability plan submitted to the Treasury Department on Feb. 17 included support for Delphi, but did not specify an amount, GM spokeswoman Renee Rashid-Merem said.

Delphi is GM’s biggest supplier, providing $5.57 billion in parts globally in 2008. That was 31 percent of Delphi’s $18.06 billion in 2008 global sales.

For 2008, Delphi reported a $1.48 billion operating loss.

Last week GM cut another deal with Delphi to keep alive the electronics and engine parts maker and preserve GM’s parts supply. GM agreed to buy Delphi’s global steering business and said it may buy other struggling U.S. factories. GM advanced Delphi $150 million in addition to the $300 million already advanced so that Delphi has enough operating cash through May.

That’s a Band-Aid, though, on a deeply wounded supplier. Delphi said in October that the industry downturn and collapsed credit markets have so far made it impossible to raise $3.75 billion in capital to emerge from Chapter 11 reorganization. Delphi entered Chapter 11 in October 2005.

Since October, conditions have worsened for Delphi. North American vehicle output fell by half in the first two months of 2009. That has been disastrous for most suppliers.

International conditions also worsened in the second half of 2008. In the first half of 2008, unaudited numbers computed by Automotive News show Delphi’s overseas operations, which are not bankrupt, had operating profit of about $429 million on revenue of about $6.02 billion.

After making a small profit in the third quarter, Delphi swung to an overseas operating loss of $309 million in the fourth quarter. 


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