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From Automotive News:

A strike at Delphi could push GM to empty, analysts say

Reuters / March 31, 2006 - 4:00 pm
DETROIT -- General Motors could be forced to shut its North American operations at a cost of $1 billion a week or more if a strike hits Delphi Corp., analysts said on Friday.

Delphi asked a U.S. bankruptcy court on Friday to void its U.S. labor contracts and reject unprofitable supplier deals with GM, covering about half the automaker's North American annual purchase volume.

The UAW said it would be "impossible to avoid a long strike" if the court rejects its Delphi contracts and added that there was "no basis for continuing discussions."

"That's scary -- the fact that they are saying there is no reason to even negotiate now," Argus Research analyst Kevin Tynan said. "If you were to take their statement at face value, that increases the likelihood of a strike considerably."

"If it's a long, drawn-out strike, GM would face an unsustainable cash burn rate that would end up in bankruptcy," he said.

The world's largest automaker lost $10.6 billion in 2005 as it grappled with high labor and materials costs, loss of U.S. market share to foreign competitors and declining sales of high-profit SUVs.

Several analysts who follow the auto industry said a strike at Delphi would quickly shut GM's North American operations and cost it dearly.

"GM books its revenue when it sells to dealerships. If they are not producing anything, they are not selling anything. But they still have the overhead costs such as payroll for white-collar staff, maintenance of plants, electricity, etc.," Tynan said. "That cash flow is not coming from revenue, it's coming from their stockpiled cash. And it will cost them about $1 billion a week to keep the lights on."

A 1998 Delphi strike halted about 95 percent of GM's North American operations for nearly two months.

"We disagree with Delphi's approach," GM CEO Rick Wagoner said in a statement. "GM expects Delphi to ... avoid any disruption to GM operations." He said GM would continue working with Delphi and the unions to reach a deal.

GM, which spun off Delphi in 1999, estimates that its liability for benefits to Delphi workers ranges from $5.5 billion to $12 billion.

"I think there will be a strike, but a short one," Burnham Securities analyst David Healy said. "But any Delphi strike would shut down GM totally in a matter of days."

David Cole, chairman of the Center for Automotive Research, said all parties involved were still talking, adding that GM "obviously cannot afford to have a significant disruption."

Delphi CEO Steve 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."

Citigroup Investment Research analyst Jon Rogers said GM's $21 billion in liquidity could fluctuate as pricing pressure from suppliers increases.

Delphi, GM and the UAW said last week they would offer buyouts to more than 125,000 union workers and allow up to 5,000 Delphi workers to return to GM.

"This is a crucial time for GM," Tynan said. "They need to get everyone talking because they are the ones that really have the most to lose with a strike," Tynan said.
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