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It is a sign of hard times when adult children start asking their parents for money and an even worse sign when the parents, facing their own problems, plead poverty. It was 10 years ago that General Motors spun off its auto parts business into a new company, Delphi. It has been a problem child ever since, leeching several billion dollars from GM and entering bankruptcy in 2005, from which it has failed to exit. Youthful profligacy is not behind its woes though – Delphi toils in a family business facing the worst conditions since the Great Depression.
Delphi had hoped to exit bankruptcy this year but the collapse in car production has made its financing plan unworkable. With even secured post-bankruptcy lenders worried about being repaid, GM may convince them to let it take over some plants even as it pleads for federal loans to avert its own Chapter 11 filing.
How GM will make this worthwhile for Delphi’s creditors is unclear but its own operations are now threatened. Delphi is still GM’s biggest supplier though it gets 62 per cent of its $22bn in sales elsewhere, up from just 35 per cent in 2002.
Like almost everything else about GM, any decision must go through Washington as next Tuesday’s deadline for presenting a viability plan approaches. The Big Three auto manufacturers’ frantic efforts to conserve cash threaten dozens of suppliers, enlarging taxpayers’ potential auto bail-out tab. Though Delphi represents a rare failure of the US bankruptcy process, its travails should not deter Washington from wielding the threat of Chapter 11 to earn deep concessions from lenders and unions. If it does not show the Big Three tough love on Tuesday, they will act like a ne’er do well child, coming back again for more cash. The bill for taxpayers will be large indeed.
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