Having explored many of the options available to a company that is experiencing dire financial problems, including out-of-court workouts, hiring financial management companies, and even filing for various types of bankruptcy, I decided to take a look at one company that has gone through a bankruptcy and emerged from the proceedings. I looked at several different companies, but decided to examine Delphi Corporation for this entry. I chose it for several reasons, but the most important was that I was formerly a contract employee for them in the Dayton area. I was able to watch as the company worked its way through the bankruptcy proceedings. During this time, I found Delphi to be quite open about their progress through the bankruptcy proceedings, and also managed to continue to meet some of its responsibilities to its employees, retirees, and society at large. Even though I was eventually laid off, the company itself did eventually emerge, trying its best to become a better company.
In a press release dated March 31, 2006, Delphi outlined its plan for emerging from its Chapter 11 bankruptcy proceedings (for the complete text of the press release, please go to: http://delphi.com/news/pressReleases/pressReleases_2006/pr75605-03312006/). Delphi stated that it would continue negotiations with U.S. unions and with General Motors, from which it was spun off, which had as its goals to move the company towards consensual agreements that would give Delphi a competitive labor cost structure. It also wanted to initiate a “dual track” Bankruptcy Court process with which it hoped to be able to reject both some collective bargaining agreements and some unprofitable contracts it had with General Motors in order to help it restore profitability. Delphi looked to retain and grow what it had identified as its core businesses while selling off or winding down those businesses it had identified as non-core. Core businesses Delphi has identified included the following automotive facilities in the U.S.: Brookhaven, Mississippi; Clinton, Mississippi; Grand Rapids, Michigan; Kokomo, Indiana; Lockport, New York; Rochester, New York; Warren, Ohio; and Vandalia, Ohio. At these facilities, Delphi stated that they want to improve productivity, restructure their product lines, and reduce and restructure the workforce. To achieve these goals, Delphi stated it would allocate the necessary capitol and resources. It also hopes to maintain its commitment to developing technology that would help keep it at the cutting edge. Delphi would reduce its global salaried workforce by 25% through various means. Finally, Delphi would try to retain its hourly and salaried defined benefit pension plans, but freeze them by the end of 2006. It would also attempt to implement competitive benefit packages for its current workforce. .
Delphi did spend four years in Chapter 11 protection, but eventually was successful in emerging from it in October 2009. Even though it did try, Delphi was unable to meet all of its stated goals during its bankruptcy proceedings. In an article from the New York Times dated January 11, 2011, a new plan, approved by Delphi’s board, is outlined (the full text of this article can be found at http://topics.nytimes.com/top/news/business/companies/delphi-corporation/index.html). In this new plan, Delphi’s debtor-in-possession lenders, who loaned $3.4 billion to keep Delphi operating during the bankruptcy, would take over most of Delphi’s assets. The lenders would also forgive their loans in exchange for taking control of the company. Delphi would still have pension obligations, some of which have been, or will be, transferred to G.M.. Also, General Motors, in the midst of its own reorganization, asked the federal government to allow it to use $2.8 billion in borrowed funds to assist Delphi. In October 2009, G.M. stated it received $1.7 billion to buy an interest in a reorganized Delphi. G.M., in addition to taking over some of the pensions from Delphi, also took over several of Delphi’s businesses, including the steering business. .
However, not everyone connected to Delphi benefited from its emergence from bankruptcy and its deals with creditors and with General Motors. In an article from the Detroit Bureau, what Delphi did with their pensions as part of its bankruptcy program, are examined (For the full text of this article, please visit http://www.thedetroitbureau.com/2011/06/former-car-czar-will-testify-about-abandoned-delphi-pensions/). As part of the deal, the pension program run by Delphi was abandoned. This pension program covered about 70,000 retirees; many of whom have lost as much as 65% of their benefits. The Pension Benefit Guaranty Corporation, an agency formed to assume control of failed pension programs, will cover $6.1 billion of the $7 billion the program was underfunded by, making this the second largest failed pension program assumed by the company.
Delphi has done what it has had to do in order to emerge from its Chapter 11 bankruptcy as a better, stronger company. In my first post, I stated that a company’s first duty to itself is to make a profit. Without this, it cannot do much else. While Delphi has cut much of its workforce, many of its U.S. facilities, and much of its pension obligations, it has still managed to continue to operate. While it was in bankruptcy, Delphi met all of the Sarbanes-Oxley requirements, as well as meeting and maintaining ISO 9000 and ISO 14000 standards. Also, as it emerges and works to become a profitable company, it also maintains many philanthropic, socially responsible programs. For a complete list of these efforts and a description of them, please visit http://delphi.com/about/social/community. It has also taken care of the facilities it has chosen to not keep. In the Dayton area we have seen the sale of three former Delphi facilities and at least the maintenance of a fourth. These facilities have not become eyesores, but are being turned in to (hopefully) viable new businesses. While Delphi is not perfect, and it has been true to itself by trying to become a profitable company again at the expense of some communities, employees, and retirees, it has worked its way into becoming viable once again.
I am sorry to hear about your being laid off. You are correct however, in that the company did what it did in order to survive. I wonder however if they have done their reputation with both the community and GM. I imagine that the workers they still have and GM still have trust in Delphi to keep their promises. I think that altering agreements should only be done as a last resort. Great post.
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