The General Motors Corp. and Delphi Corp. are nearing a pact with the United Auto Workers (UAW). The pact is anticipated to defuse a strike threat at the former GM auto-parts unit. This information was divulged by four people with direct knowledge of the negotiations.
GM, Delphi and investors spearheaded by the Appaloosa Management LP have moved closer to an agreement after the UAW said what pay and benefit cuts it would accept, said the sources who disclosed such information on the condition of anonymity. The Detroit automaker also said that it expects to spend more on a settlement.
A Delphi strike would cripple production at GM, which purchases more parts from its former unit than from any other supplier. Since Delphi filed for bankruptcy in October 2005, Executive Chairman Steve Miller has pushed the union for pay cuts, saying that the company cannot survive without competitive labor rates.
“GM and Delphi are highly motivated to resolve this sooner rather than later because they are the two parties bearing the cost of this uncompetitive labor situation,” said Kirk Ludtke, an analyst with CRT Capital Management LLC in Stamford, Connecticut. He added the automaker is “going to have to get a deal here, and it’s going to be expensive.”
Delphi had initially asked Delphi union workers to accept an hourly wage as low as $12.50. The workers are paid about $27 an hour under the current UAW contract. According to a February report by Sean McAlinden from the Center for Automotive Research in Ann Arbor, Michigan, the national average for a manufacturing worker is about $16.51 an hour and non-union parts workers devoid of retiree benefits earn closer to $11 an hour.
An agreement would pave the way for Delphi’s coming out from bankruptcy, already delayed once this year after potential investor Cerberus Capital Management LP balked at union opposition to pay cuts. A pact may also permit the Detroit automaker to meet its goal of resolving the Delphi situation before the start of negotiations with the union in July on a new four-year contract.
GM, the America’s biggest automaker, reported progress in the Delphi deadlock when it said last Thursday that it had increased its estimate for what an accord will cost. “General Motors has received proposals from Delphi and from the United Auto Workers Union regarding support to be provided by GM as part of Delphi’s restructuring, and believes that the proposals provide a basis for continuing productive negotiations,” the Detroit automaker said in a regulatory filing.
Sources said that a final agreement may be several weeks or more away as other issues remain. Delphi spokeswoman Claudia Piccinin, GM spokeswoman Melisa Tezanos and Appaloosa President David Tepper declined to comment on prospects for an agreement.
While working on the flourishing transaction, the Detroit automaker is also absorbed in alleviating its product lines. Auto parts and accessories like the GMC pickup cap & rotor kit are placed under close scrutiny to compete with its closest rivals especially the Toyota Motor Corp, which could snatch GM’s crown this year.