Tuesday, September 9, 2008

Delphi Update

"Giant auto-parts maker Delphi Corp. is sliding deeper into trouble, raising doubts about its ability to survive as a stand-alone company. ... When GM spun off the company in 1999, it retained an obligation to fund pension and health-care benefits to former GM workers who moved to Delphi. Delphi's problems have already cost GM about $11 billion in cash and write-downs. ... Ray Young, the chief financial officer of [GM], said this month that the auto maker was having a 'constructive dialogue' with Delphi, but 'they have to understand there is only so much that we can do. They're going to have to do their own form of self help here.' ... Delphi's struggles threaten to further complicate GM's efforts to turn around its own North American operations", WSJ, 29 August 2008.

I don't see how Delphi's problems "further complicate GM's efforts". As I see it, Delphi was part of GM all along, just an "unconsolidated subsidiary". Delphi was created primarily to let GM offload pension liabilities on Uncle Sam.


JohnnySmith said...

do you think Delphi we'll go under, I doubt GM will. According to your post Delphi is part of GM so then can i assume you would think that delphi will be solvent

Independent Accountant said...

I maintain, in substance, Delphi was always part of GM. If the courts see it that way, Delphi will only "go under" when GM does. As a practical matter, I think Delphi can be reorganized. The issue is: who will bear the losses, Uncle Sam, GM, Delphi's pensioners, or unsecured ceditors?