Delphi in Trouble


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Case Details:

Case Code : BSTR189
Case Length : 20 Pages
Pages Period : 1995-2005
Organization : Delphi Corporation.
Pub Date : 2005
Teaching Note :Not Available
Countries : US
Themes: Failure of Strategy
Industry : Auto and Ancillaries

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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EXCERPTS Contd...

Agreement With UAW

In September 2003, UAW reached an agreement known as New UAW Delphi National Agreement with Delphi. The agreement, valid for the following four years, was quite similar to the one between UAW and GM reached in September 2003. Delphi and UAW decided on a series of actions to make Delphi more competitive and viable in the long run. As part of the GM-UAW deal, GM committed itself to giving UAW-represented Delphi facilities, business contracts worth nearly US$ 1 billion...

Accounting Scandals Surface

In July 2004, the US Securities and Exchange Commission (SEC) started investigating the accounting practices of Delphi. The charges against the company were that it had committed fraud in a US$ 20 million transaction in 2001 with its technology services provider Electronic Data Systems Corporation (EDS).

This led to doubts regarding Delphi's transactions with GM and other companies. Delphi also announced an internal audit of its accounts in August 2004 to be completed by June 30, 2005. As the SEC investigation was going on, Delphi announced its unaudited fourth quarter and annual results for 2004...

Delphi Hires Steve Miller

Delphi hired Robert S. "Steve" Miller (Miller) to replace Battenberg as Chairman and CEO from July 01, 2005. Miller, well known as turnaround specialist, had guided firms like Bethlehem Steel, Morrison-Knudson and Federal-Mogul through bankruptcy proceedings. Commenting on Delphi's situation, Miller said, "There is still a theoretical possibility of a (bankruptcy) filing..."

The Final Efforts

In the first week of October 2005, Delphi asked 24,000 of its workers to accept major wage and benefit cuts to avoid bankruptcy filing. According to UAW, Delphi planned to reduce hourly wages by 60%, remove the guarantee pay of benefits for idle workers and major cuts in healthcare and pension benefits over the next three years.

Along with these cuts, Delphi asked GM to also extend financial help to Delphi to avoid Chapter 11 filing. The talks between GM and Delphi did not take place after September 2005, and UAW opposed Delphi's wage cut demand...

Looking Ahead

Industry analysts predicted a difficult ride for Delphi, UAW and GM in the near future. They felt that though Delphi had excellent technological capabilities, its excessive dependence on GM, management inefficiencies, labor costs and other macroeconomic factors had given the company severe problems. According to John Moavenzadeh, Executive Director of IMVP, "They had a great product, great technology, and they were doing well. But unfortunately, their sales to GM were low-margin to negative-margin sales...

Exhibits

Exhibit I: Entities Included in the Petition
Exhibit II: The New US Bankruptcy Law
Exhibit III: Biggest Bankruptcies in the US
Exhibit IV: Dephi's Financials in Recent Years
Exhibit V: Bankruptcy Filings By Other US Suppliers
Exhibit VI A: Income Statement (1995-99)
Exhibit VI B: Income Statement (1995-99)
Exhibit VII: Delphi Logos
Exhibit VIII: Delphi's Restated Earnings (2000-04)

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