Delphi Strike to Take Down GM Giant?

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Due to the volume of parts that Delphi supplies for General Motors, the threat of a strike by Delphi union workers will significantly impact the automaker. Talks of potential bankruptcy have surfaced, as well as the trickle down effect throughout the country. While competitors will also be adversely effected, GM officials view the potential strike as detrimental to the industry as a whole.

Market Drive News exclusive analysis of the potential impact of a Delphi strike including an interview with Jerry Dubrowski, Director of Financial Communications for GM.

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by Susan Campbell

Over time, the automotive industry has seen the trends and changes in not only consumer demand, but in the way that cars are purchased and sold. In 2000, a major change came in the form of AutoNation. The online and nationwide auto retailer became the largest automotive retail company in America, changing the face of the automotive retail industry for good.

No longer was the car buyer limited in his choice of cars according to how far he was willing to drive to a dealership to negotiate the best deal possible. AutoNation utilized the Internet to market to the masses without geographic limitations, forcing dealerships to change their strategy in order to remain competitive.

Another revolution is looming on the horizon in the form of a strike by unionized workers at Delphi, the nation’s largest auto-parts supplier. The company recently bid to have a judge throw out its labor contracts with the United Auto Workers (UAW).

The potential strike that may well result could have the capability of crippling the automotive giant General Motors (GM) and cause a trickle-down effect on the regions of the country where automotive jobs are heavily concentrated.

In a statement issued last month, UAW President Ron Gettlefinger and Vice President Shoemaker referred to Delphi’s request as a travesty and a concern for every American. Delphi’s proposal would slash the company’s UAW-represented hourly workforce by 75 percent, devastating Delphi workers, their families and their communities.

Some industry experts predict that a Delphi strike could affect GM plants in just 48 hours and cause the automaker’s cash stockpile to rapidly shrink. It is predicted that if the anticipated strike lasts three months or more, GM could expend upwards of $30 billion, closing in on the risk that the automaker could go bankrupt. However, GM is selling its stakes in the GMAC finance unit and an 8 percent stake in Isuzu Motors that will put the company in a better financial position to weather a strike.

Jerry Dubrowski, Director of Financial Communications stated exclusively to Market Drive News, “We want to work with Delphi and the unions to reach a consensual contract. We would all agree that a strike does not benefit any of the parties. The most important factor in all of this is reaching a solution in order to avoid a strike.”

Rick Wagoner, GM Chief Executive Officer has issued his own statements in response to the experts’ predictions of bankruptcy. Wagoner vehemently claims that GM has absolutely no plan, strategy or intention to file for bankruptcy.

And, while US automakers like GM and Ford will certainly feel the effects of the Delphi strike, both companies possess the inventories necessary to fulfill demand for some time. The same may not be true for foreign manufacturers like Toyota whose approach to production differs greatly from that of the American giants.

Some in the industry have even speculated that a Delphi strike could actually be a good thing for GM in that it could quickly hurt Toyota and push more customers toward the American automaker. When asked for GM’s view on this, Dubrowski noted, “Delphi does provide some parts to Toyota, not as many as to GM but they certainly could be effected by a Delphi strike. Delphi is an important supplier to all automakers and a strike would be detrimental to the industry as a whole. We don’t see a competitive benefit from a strike that can hurt Toyota.”

Whether GM is at risk for bankruptcy or not, it certainly has the auto industry on edge as it employs more than 142,000 people in the United States and spends more than $85 billion annually on parts and services from over 3,000 suppliers. The automaker is also dependent on Delphi being in place in order to successfully launch a new line of trucks due at the beginning of the year.

One J.P. Morgan analyst warned that an unauthorized strike at a single Delphi plant poses the larger risk to GM, citing two 1998 strikes at GM parts factories that forced the closing of 26 of the automaker’s 29 North American assembly plants. As a result, production was canceled on 318,000 cars and tucks and profit was cut by $1.3 billion.

While the final outcome of the Delphi, UAW and GM scenario has yet to played out, it is highly doubtful that a peaceful outcome will result. Delphi is proposing drastic cuts in salaries and benefits unless GM offers additional financial support, which the company has clearly stated it will not provide. The UAW won’t sit by and negotiate on the terms provided by Delphi and unless the judge demands that Delphi and the UAW work out a compromise, the outcome will likely to be felt throughout the world.

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