Bankruptcy Attorneys

The answer to whether General Motors stays out of bankruptcy could well be found in another company’s bankruptcy court hearing that started Tuesday.

At the hearing, which started in federal court in New York Tuesday morning, auto parts maker Delphi (Research) is arguing it needs to dump labor contracts that run through September 2007, while three unions will argue their members shouldn’t be penalized for what they call management mistakes.

The United Auto Workers union has threatened a strike at Delphi if the auto parts maker is allowed to void its labor contract, a move that would bring GM (Research)’s operations to a virtual halt. UAW members are voting on whether to authorize a strike and another union at Delphi, the International Union of Electrical and Communications Workers, has already approved a walkout.

Delphi, which is seeking pay cuts of 40 percent from its unions, has 33,000 hourly workers in North America, while GM employs 113,000 workers who are members of the UAW in the United States.

Union officials did not return calls seeking comment, but they have taken a hard line against Delphi’s demands.

“In the event the court rejects the UAW-Delphi contract and Delphi imposes the terms of its last proposal, it appears that it will be impossible to avoid a long strike,” UAW President Ron Gettelfinger and union VP Richard Shoemaker said the day Delphi filed its motion to void the contracts with the bankruptcy court in March.
Deal or no deal?

There is virtually no chance that GM can keep running during a shutdown at Delphi; the former GM unit was spun off in 1999 but is still the automaker’s largest supplier. A 54-day strike at just one Delphi plant in 1998 shut down production at GM and caused a $2 billion reduction in earnings at GM and Delphi.

And most industry observers believe a prolonged shutdown at GM would cause losses severe enough to force GM into bankruptcy.

“If Delphi strikes, it’s not just the parts situation. It’s the psychological damage,” said industry observer Robert Farago, publisher of TheTruthAboutCars.com. “All the experts, all the other suppliers, all the lenders who are assuming a strike will never happen would be proved wrong. It could be like a run on the bank, your basic perfect storm.”

It wouldn’t just be GM that would be hurt by a Delphi strike, said David Cole, chairman of the Center for Auto Research. North American assembly plants at Ford, Chrysler as well as nonunion plants owned by Toyota, for example, would find themselves shut down from lack of parts, he said.

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