Delphi files under Chapter 11:
Delphi and 38 of its US subsidiaries filed under Chapter 11 on October 8th. DPH plans to close plants and make job cuts in Chapter 11. We expect DPH to change its labor contracts to lower wage costs and to reduce pension and healthcare benefits.
Costs and Risks to GM: There is a risk that the UAW could initiate work stoppages at DPH or that DPH could discontinue production of certain parts that would affect GM's supply and result in cash burn at GM. According to GM its costs under benefit guarantees to DPH employees could range from nothing to $11 billion and it expects the cost to be somewhere in the middle of that range.
Risk to New Model Launch; we expect S&P downgrade: The DPH bankruptcy creates the risk of higher unit costs and of possible supply disruptions with inventories at low levels and as GM is getting ready to launch its new GMT900 line up of SUVs and trucks. In our view, S&P is likely to downgrade GM and GMAC to as low as B+, partly as a result of Delphi.
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