Can GM save Delphi from bankruptcy?

An empty Delphi automotive plant in Dayton, Ohio


Renita Jablonski: Delphi officials are in Washington today. The auto supplier will be talking with its creditors, President Obama's auto task force, and it's former owner, General Motors. The question is what role GM needs to play at this point to help Delphi come out of bankruptcy protection.

Delphi's been operating under Chapter 11 since October 2005. Today's meeting was planned after the Treasury Department said last week it wanted to take a closer look at an agreement where GM would loan Delphi $150 million if the parts maker went ahead and sold its steering business to GM.

Marketplace's Steve Henn is with us now from Washington. Steve, an interesting relationship to say the least, why does the government want to block this loan and sale?

Steve Henn: Well, they haven't said yet. I mean, analysts I've talked to have said they're not convinced that ultimately the government will block this deal. But they think that the automotive task force wants to take every opportunity to look at any big deal GM is getting itself into. You know as you know, Delphi's a key supplier -- they make everything for GM, from steering systems to break parts, even lithium batteries for a hybrid that GM is developing with a joint venture in China. But in many cases, the parts Delphi makes for GM are expensive and not that competitive, and GM said they can save up to $2 billion a year if Delphi was really run well. So obviously, fixing Delphi is a key part of fixing GM.

Jablonski: Well, why can't GM buy parts from someone else?

Henn: The problem for GM is it's really dependent on Delphi. Delphi was a unit of GM until just a decade ago. And while they could get many of these parts elsewhere, some they couldn't. If Delphi collapses, that's going to cause big production disruptions for GM. You know, just missing one crucial part can shut a plant down. And that's what GM's really afraid of.

Jablonski: So what's Delphi's main problem?

Henn: Well in a word, financing. You know as you can imagine, in this environment it's tough for anybody to get a loan. It's really tough for an automotive company to get a loan. And if you add to that that Delphi's been in bankruptcy for almost four years, no one wants to lend an automotive parts company money right now. I mean, the market is collapsing. In 2007, car companies sold 16 million cars in the U.S. Analysts expect them to sell just half that now. So even the healthiest companies are having problems, and Delphi just hasn't been able to find a lender. Some folks are talking about the government stepping in, and while that's possible, I think the big lesson the government's going to have to draw from this is that pushing any car company into bankruptcy in this environment is a big risk. They might not come out.

Jablonski: OK, Marketplace's Steve Henn in Washington. Thanks a lot.

Henn: Thank you.


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