DETROIT - Delphi Corp., the nation's largest auto parts supplier, filed for bankruptcy yesterday, sending shock waves through a U.S. auto industry already weakened by high labor costs and falling market share.
Detroit's Big Three automakers and their workers, suppliers, and investors had anticipated the filing for years, some with dread and others with hope.
At stake is the survival of Delphi, a global giant with 185,000 employees and annual sales of $28 billion, and the wages and jobs of its 33,000 unionized workers across the country.
Delphi's bankruptcy, which is expected to result in plant closures and layoffs, is one of the largest in U.S. history.
In its Chapter 11 filing in U.S. Bankruptcy Court in New York, Delphi said a "substantial segment" of its U.S. manufacturing base will be sold off or phased out over the next two years.
Delphi's non-U.S. operations were not included in the filing.
The company will move to slash union wages up to 60 percent, cut health-care benefits, and free itself of pension obligations to tens of thousands of employees inherited when Delphi was spun off from General Motors Corp. in 1999.
Delphi Chairman and CEO Robert Miller said the company hopes to emerge from Chapter 11 in early to mid-2007.
"We will make every effort to make this as quick as possible," Mr. Miller said yesterday.
A restructuring expert who was hired in July, Mr. Miller had threatened to take the company into bankruptcy if he failed to reach a restructuring agreement with Delphi's former parent, General Motors Corp., and its largest union, the United Auto Workers. He set a deadline of Oct. 17, when U.S. bankruptcy laws are scheduled to change.
Mr. Miller said Delphi will continue negotiating with GM and the UAW to lower its labor costs. He said the three parties agreed to continue their discussions after a bankruptcy filing.
"We mutually concluded there was still too much of the complex work yet to be done," Mr. Miller said. "It was not going to be efficient to work right up to the midnight deadline to the change in the law."
UAW officials blasted Delphi's decision to file for bankruptcy one day after sweetening the severance packages of 21 top executives to help persuade them to stay at the company.
"Once again, we see the disgusting spectacle of the people at the top taking care of themselves at the same time they are demanding extraordinary sacrifices from their hourly workers, engineers, administrative and support staff, midlevel managers, and others," union leaders said in a statement.
Mr. Miller said he has assured GM and Delphi's other customers that a wide range of auto parts critical to their assembly plants will continue to be built and shipped on time.
He said Delphi's U.S. work force will be largely unaffected in the first three to six months of the bankruptcy process.
But bigger issues loom as Delphi becomes the test case for unraveling decades of financial gains by the United Auto Workers to level the playing field with lower-cost parts makers in Mexico, South America, and Asia.
Delphi has 31 plants in 13 states, including Michigan, Ohio, Alabama, and California. The company has 185,000 employees worldwide.
Delphi employs about 1,100 hourly and salaried workers at a plant in Sandusky, where the work force manufactures wheel bearings, according to Claudia Baucus, a company spokesman. Ms. Baucus said another 450 salaried and hourly workers are employed at a plant in Adrian, where automotive heating, ventilation, and air conditioning modules are produced as well as vehicular instrument panels.
"Our people will get their paychecks and will still have their health benefits," Delphi's Mr. Miller said. "Retirees will continue to get their checks. Any changes to that will be dealt with in an orderly way."
Jim Gillette, supplier analyst for CSM Worldwide in Grand Rapids, said he expects a number of underperforming plants to be shuttered or sold. He also said the bankruptcy could prompt other companies to file too.
Delphi, Michigan's fourth-largest corporation and No. 63 on the 2005 Fortune 500 list, had listed $17.1 billion in assets and $22.2 billion in debt in yesterday's bankruptcy petition. The company had $4.3 billion in unfunded pension liabilities at the end of 2004, according to a filing with the U.S. Securities and Exchange Commission.
The largest U.S. corporate bankruptcy was WorldCom Inc., which had $103.9 billion in pre-bankruptcy assets.