Buffalo News (New York), April 1, 2006, Saturday

Copyright 2006 The Buffalo News
Buffalo News (New York)

April 1, 2006 Saturday
FINAL EDITION

SECTION: NEWS; Focus: Delphi Lockport; Pg. A1

HEADLINE: Delphi plant gets conditional reprieve;
Facility faces job cuts, loss of product lines

BYLINE: By David Robinson - NEWS BUSINESS REPORTER

BODY:
Delphi Corp.'s Lockport plant won a new lease on life Friday, even as the troubled auto parts maker unveiled plans to close or sell 21 of its 29 U.S. factories. But company officials warned that the local facility still faces a major shake-up to become more competitive.
"It's good news from the standpoint that the Lockport plant is identified as a core facility," said Lindsay Williams, a Delphi spokesman. "It's more important to recognize that, although they've been identified as core, significant transformations are required for them to continue."
Williams declined to outline the specific changes Delphi is seeking at the Lockport plant, which now employs 3,800. But the company said the eight U.S. facilities it wants to keep open all will face job cuts, as well as restructuring to boost productivity and refine product lines. The Lockport factory, Williams noted, was on the company's list of troubled plants for several years because of its lagging financial performance.
State and local officials hailed Delphi's decision to keep its plants in Lockport and Rochester open as a major victory for the Buffalo Niagara economy, preserving several thousand manufacturing jobs and warding off what could have been a devastating blow to the region.
"It's very positive," said Gov. George E. Pataki, who has agreed to provide more than $23 million in grants and loans to Delphi for its Lockport and Rochester plants. "We have to fight to keep the older manufacturing jobs."
But Friday's announcement also left several key issues unresolved, including the potentially explosive push by Delphi to slash wages for its remaining workers -- a move that included the company asking a bankruptcy court judge to void its union contracts. All of Delphi's restructuring moves must be approved by the bankruptcy court.
The union has threatened to strike if wages are unilaterally reduced, and analysts said a prolonged strike could drain so much cash from General Motors Corp., Delphi's main customer, that the automaker may be forced into bankruptcy within months.
"Delphi is taking a more aggressive posture, and it's making General Motors' operations more vulnerable," said Nallan Suresh, a University at Buffalo management professor. "Delphi's actions are increasing the probability of a strike and a disruption of GM's supply chain."
The Lockport plant was able to survive, in part, because its main products -- radiators, air-conditioner components and ventilation modules -- are among the climate control and powertrain cooling products Delphi plans to focus on, Williams said.
>State incentives helped
Rep. Thomas M. Reynolds, R-Clarence, who spoke with Delphi chief executive Robert S. "Steve" Miller on Friday, said Miller cited the plant's work force, the 24.3 megawatts of low-cost electricity the plant receives and other incentives being offered by the state as reasons for keeping the Lockport and Rochester plants open.
"This is a tremendous relief," Reynolds said. "Certainly if this plant has a long-term future, it's a boost to every facet of the community."
The low-cost power, which includes 10-megawatts that were approved by the New York Power Authority last month, is a key item in the incentive package, along with a $20 million grant and loan package that is based on the number of jobs that remain at the Lockport factory. Pataki said the state also is offering the company $3.5 million linked to the Rochester facility.
"Delphi officials told us before, and again today, that the incentive packages played a very important role," Pataki said.
Other analysts said the size of the Lockport facility and the challenge of duplicating its production elsewhere may have been factors, as well.
"For the Lockport plant, you have critical mass. You have the physical size. You have all of the equipment. It's not an easy plant to get rid of," said Arthur Wheaton, an industry education specialist who closely tracks the auto industry at the Cornell University School of Labor Relations in Buffalo.
The United Auto Workers union blasted Delphi's move to void the contracts and close plants, and said it could stall negotiations. "Indeed, today, it appears there is no basis for continuing discussions," the union said in a statement.
"Delphi's misuse of the bankruptcy procedure to circumvent the collective bargaining process and slash jobs and wages and drastically reduce health care, retirement and other hard-won benefits, or eliminate them altogether, is a travesty and a concern for every American," the union said.
GM also criticized Delphi's bid to void its labor contracts and some of its supply agreements with the automaker. "We disagree with Delphi's approach, but we anticipated that this step might be taken," GM Chairman Rick Wagoner said in a statement.
>Cuts in salaried jobs
Delphi also said it will cut as many as 8,500 salaried workers -- 25 percent -- and freeze its hourly pension plan at the beginning of October and its salaried pension plan at the beginning of 2007. Freezing the plans means workers will stop accruing benefits beyond that date, but will retain any benefits earned up until that time. Delphi then will shift workers into a defined contribution program with an unspecified company match.
"We are clearly focused on Delphi's future," Miller said in a statement. "Emergence from the Chapter 11 process in the U.S. requires that we make difficult, yet necessary, decisions."
Delphi, GM and the UAW have been negotiating for months to reach a wage agreement, with a deadline for asking the court to void the union contracts being extended three times before Friday. The UAW and other unions earlier this week rejected Delphi's latest proposal to cut pay for hourly workers from the current $27 an hour to $22 per hour through September 2007 and then to $16.50 per hour after that. Delphi's remaining workers then would be eligible to receive a $50,000 "wage buydown" payment.
A court hearing on the move to void the contracts will be held May 9 and 10, giving the sides more time to negotiate. U.S. Bankruptcy Judge Robert Drain could issue a ruling on whether to void the contracts by June 8.
"This ratchets up the pressure on the negotiations," Cornell's Wheaton said.
"Delphi is saying we need more savings, and if we can't get it in wage concessions, then we're going to get it from plant closings," said Patrick Heraty, a professor of business administration at Hilbert College.
"Clearly, Delphi's leadership has recognized what we know, that both facilities in New York and its workers are an indispensable component not just of Delphi, but of the entire auto industry," said Sen. Hillary Rodham Clinton, D-N.Y. "Nevertheless, I am concerned about the motions filed in the bankruptcy court and the effect it may have on the ongoing negotiations."
Sen. Charles E. Schumer, D-N.Y., said: "Upstate New York has dodged a bullet today. The fact that both New York plants are not on the list to be closed is very good news and a tribute to the productivity of New York's work force. We now have to do everything we can at the federal, state and local level to minimize any further employment shrinkage."
>Production changes
Delphi said it plans to focus on making products that can capitalize on the company's technical skills for use in cars and industries such as consumer electronics and medical systems. The company intends to keep building controls and security products, as well as electrical, safety and entertainment systems.
The company plans to stop making brake and chassis systems, catalysts, cockpits and instrument panels, door modules, steering systems and wheel bearings.
"What you see here is Delphi rationalizing its business to the point where it can say: 'If we can keep these plants as our core business, we can be profitable,' " said Bruce Belzowski, senior research associate at the University of Michigan's Transportation Research Institute.
Delphi, which filed for bankruptcy in October, said it intends to emerge from bankruptcy during the first half of next year. The company plans to close or sell its noncore plants by 2008.
Besides the Lockport and Rochester plants, Delphi said it will continue to operate six other U.S. plants, including factories in Brookhaven and Clinton, Miss; Grand Rapids, Mich.; Kokomo, Ind.; and Warren and Vandalia, Ohio. Pataki said he does not expect job cuts at Delphi's Rochester plant.
Delphi also may seek relief from the Pension Benefit Guaranty Corp., the Internal Revenue Service and possibly Congress so that when it emerges from bankruptcy protection it won't immediately owe billions of dollars to its underfunded pension plan. The company expects it will take at least six years to fully fund its plan.
News National Correspondent Jerry Zremski contributed to this report.
e-mail: drobinson@buffnews.com