Bankrupt Delphi tries to shed retiree health care obligations

Remember Delphi, the giant parts supplier for General Motors? It spun off from the mother ship in 1997 and declared bankruptcy in 2005 after a an accounting scandal cast a long shadow on its financial position.

Delphi has roughly 170,000 employees and has many of the same issues as GM: a rigid, union-dominated workforce, brutal retiree health care liabilities, and a balance sheet as clean as Michael Moore's arteries.

The company has yet to emerge from bankruptcy and now says that it needs additional relief from a crushing amount of debt.

Delphi Corp. is asking a bankruptcy judge for permission to stop paying health care and life insurance benefits to its salaried retirees... The Troy automotive parts supplier has been struggling to emerge from Chapter 11 bankruptcy protection and has launched a series of new cost-cutting measures to help the company attract the financing it needs.

...The move would end health insurance benefits to about 15,000 Delphi salaried retirees, most of whom rely on Delphi for medical, dental and vision coverage... The change would not affect benefits to current salaried workers, but those workers -- about 9,600 in the United States -- would not receive benefits after they retire.

CFO Magazine reports on the impact to the bottom line.

The company claims it will save about $70 million per year, or $200 million through 2011, according to the AP report. Delphi also reportedly told the court that if it is permitted to cut the benefits, it will be able to reduce its balance-sheet liabilities by $1.1 billion.

The company wants the change because industrywide projections for auto sales have gone way down in the past few months. Earlier forecasts called for industrywide light vehicle production of 14.2 million units in 2009 and as many as 16.3 million units in 2011. Now, automakers say the best the industry will be able to do this year will be about 12.5 million units, Delphi said...

Delphi, which has been in Chapter 11 since October 2005, has been hurt by the credit crisis as it seeks financing. Last August former parent General Motors agreed to lend Delphi an additional $300 million simply to improve Delphi's liquidity... Altogether, GM has loaned Delphi $950 million...

In other words, GM used its precious cash to keep a bankrupt sister company afloat.

And consider that Delphi has been cleaning itself up to emerge from bankruptcy since 2005. It has about half the number of employees of GM.

Can anyone tell me why Delphi could use Chapter 7 bankruptcy law to survive and strip itself into a workable enterprise... but GM can't?

Bueller? Anyone?