Delphi: A Legacy In Limbo
May 11th, 2008May 11, 2008
Delphi: A Legacy In Limbo
by Ted Evanoff/The Indianapolis Star
As chairman’s book hits stores, the final chapter on the parts giant’s resurgence remains unwritten—the victim of ongoing turmoil in the nation’s auto industry
Steve Miller typed the final chapter in his optimistic book about troubled Delphi last year, predicting the auto parts giant soon would rise from the ashes.
Now his autobiography, “The Turnaround Kid: What I Learned Rescuing America’s Most Troubled Companies,” is reaching store shelves, recounting the 66-year-old finance specialist’s role as the problem-solver hired to lead from bankruptcy what was the country’s 56th-largest public corporation—and Indiana’s third-largest manufacturing employer.
Despite the book’s title, Delphi remains in Chapter 11 bankruptcy reorganization, stricken by falling auto sales at major customer General Motors while struggling to lure billions of essential dollars from banks and investors.
With Delphi down to its last $1.8 billion in cash, some industrial analysts doubt the Michigan-based supplier, which employs 4,600 in Indiana, almost entirely at Kokomo, can survive in its present form.
One option: Creditors could push Delphi, a company almost twice the size of Indiana drug powerhouse Eli Lilly and Co., to liquidate worldwide and sell its only money-making unit in the United States: the Kokomo-based electronics division.
Unlike the wire harness assemblies and other commodity items produced by other Delphi units, the Kokomo division’s products include premium items such as engine control modules for the Toyota Corolla, hybrid propulsion systems for the Ford Fusion and Milan, and crash-alert cruise control for the Volvo S80, V70 and XC70 that can automatically brake the car.
Just how the Troy, Mich.-based supplier could remain in flux even as Miller’s insider book hits the market traces to the unpredictable and long- running restructuring of General Motors.
Delphi has ailed ever since GM cut output in 2005 as market share eroded. Delphi brought in Miller the same year to run the company. He put Delphi in bankruptcy, thinking it would give the company leverage to gain concessions from GM and the United Auto Workers union.
Delphi eventually cut its U.S. work force by half, down to 14,800 workers, and closed dozens of plants, including operations in Anderson. By late last year, Miller figured on Delphi leaving bankruptcy this spring. He was ready to have “Turnaround Kid” appear at the same time.
Unexpectedly, the slow economy and spiking fuel prices hammered GM sales. As GM cut vehicle production, orders for parts dropped. Delphi lost $589 million in the first quarter on top of $3.1 billion lost last year on $22.3 billion in revenue.
Plans on hold
Wary of the supplier’s future ability to make money, hedge fund Appaloosa Partners scrubbed a deal to lead a $6.1 billion recapitalization of Delphi only hours before Miller was set to announce Delphi’s emergence from bankruptcy on April 4.
Unable to get hold of the vital cash, Delphi scuttled plans to soon depart Chapter 11, leaving Miller and his frank book in an awkward spot. He didn’t return calls asking for comment, though Walter Curchack, an attorney at the New York law firm Loeb & Loeb who handles complex bankruptcies, said publisher Collins Harper might have proceeded with the book over Miller’s protest.
Miller in print was critical of individuals he had been bargaining with to help bring the company out of bankruptcy. Of UAW President Ron Gettlefinger, he wrote: “Instead of calm leadership, we got vitriolic verbal attacks on management.’’ And he said of Appaloosa chief David Tepper, whose personal earnings were reported to total $800 million for 2006 and 2007: “David wanted us to sue General Motors, play hardball with the UAW, and simply walk away from health care and pension obligations.’’
Are those union bosses and hedge fund mavens now hindering Delphi’s recovery? It’s not clear—although Curchack says it’s possible. “In a Chapter 11 you have different constituencies, each with their own agenda,’’ said Curchack, who is not involved in the Delphi bankruptcy. “If something upsets someone, that can play out in the proceedings.’’
Nevertheless, Miller could have saved the entire Detroit auto industry from bankruptcy, suggests Fortune magazine’s veteran automotive reporter, Allan Sloan.
Reviewing the book on WashingtonPost.com, Sloan writes that by putting Delphi into bankruptcy, Miller “scared the hell out of GM, Ford, Chrysler and the United Auto Workers and forced a historic compromise over retiree health care. The firms agreed to set up huge trust funds that are smaller than their retiree obligations but far more than retirees would probably get in bankruptcy proceedings. Absent that deal, I think all three would ultimately have had to go into Chapter 11. Now at least there’s hope for them.’’
Sloan wrote that in February. Today, it still is not clear Delphi can soldier on. Analysts agree the key to survival for Delphi, whose stock price had sunk to 10 cents a share on Friday from nearly $19 a share at the initial public offering in May 1999, remains distant: Attract new investors.
“Delphi’s not making any money. There’s just no way to get around that,’’ said business analyst David Trainer, head of New Constructs in Franklin, Tenn., which analyzed Delphi’s prospects in a report for money managers.
Now some analysts say some creditors may be pressing Delphi to sell off pieces of the business, although no one outside the company is sure who might buy the Kokomo division, or even if it is for sale. Possible suitors are Germany’s Siemens, Japan’s Denso and literally dozens of investors.
“What may be happening is the new- money investors are more interested in the pieces of Delphi than the whole,’’ Curchack said.
Additional time
Delphi has some time to find new money. Late in April, U.S. Bankruptcy Court Judge Robert Drain, in New York, agreed Miller could rework Delphi’s reorganization plan into August. Drain also pushed back to Dec. 31 the July 1 deadline to repay operating loans. Known as debtor-in-possession loans, the $4.6 billion in financing is owed by Delphi to a group of lenders led by JPMorgan Chase.
On Friday, Delphi arranged to replace those loans with a new lending package worth $4.35 billion. In addition, GM has pledged new cash. “These actions provide the company with sufficient liquidity to support the ongoing implementation of Delphi’s transformation plan,’’ says a Delphi statement issued Friday.
It’s no mystery why Delphi and GM are closely tied. Delphi, which employs about 170,000 workers worldwide, was created by GM in a 1990s consolidation of auto- parts plants bought in the first decades of the 20th century by the automaker, which opened in Detroit in 1908.
Among the earliest acquisitions were electrical parts maker Remy Brothers of Anderson and Ohio’s Dayton Electric Co., or Delco. Both were merged decades ago to become Delco Remy, once the backbone of GM operations in Indiana.
By 1998, the automaker had put Delco Remy in Delphi and spun off the larger Delphi in an effort to buy less costly auto parts from other companies. The restructuring eventually stripped Indiana of about 25,000 GM and Delphi jobs.
While Kokomo was left as the lone Indiana city still dependent on either company, the Delco Remy legacy provided one significant advantage. Delco had opened a $1 billion computer chip fabricating plant in Kokomo in the 1980s.
Since then, Delco had focused much of its electronic engineering resources around the facility, one of the few semiconductor plants in the Midwest. Once it was independent of GM, Delphi kept its electronics division headquarters in Kokomo.
Today, 2,600 of Delphi’s Kokomo employees are engineers, administrators and other office workers. When the Kokomo mayor gave the 2008 state-of- the-city speech this winter, his focus was the engineers’ creativity rather than the uncertainty of Delphi’s bankruptcy.
“I’m very optimistic in their ability come out of this bankruptcy intact,’’ Kokomo Mayor David Goodnight said in a recent interview. “They’re very innovative. In the community, I think there’s mostly an anticipation that we’re going to get this bankruptcy behind us and move forward.’‘














