Automotive News - March 9, 2009 - (Page 26) 26 • FEBRUARY 9, 2009 Delphi gets cash from GM, seeks to slash benefits Chrissie Thompson cethompson@crain.com Bankrupt supplier Delphi Corp. has secured a $50 million cash infusion from former parent General Motors and seeks to eliminate $1.1 billion in employee and retiree benefits. In various filings last week with U.S. Bankruptcy Court in New York’s Southern District, Delphi said deteriorating conditions in the auto industry have caused it to take actions to remain solvent that it never intended. At a hearing Feb. 24, the electronics supplier will seek court approval for its plans to eliminate benefits. By Feb. 27, Delphi expects to file a new reorganization plan that recognizes the impact of collapsing sales in global auto markets. Delphi said that modified business plan probably will list its enterprise value at “substantially below” the worst-case $6.3 billion it estimated in October. The supplier cited “dramatic declines” since October in the auto industry. Its enterprise value “may be equivalent to, or even less than,” the worth of its post-bankruptcy obligations. Delphi’s debts include a $4.35 billion bankruptcy loan and about $1 billion in loans from GM. The $6.3 billion was already less Delphi wants to eliminate health care and life insurance for salaried retirees and payments to a retirement savings plan for some salaried employees. than half of its $12.8 billion estimated value a year ago. But the October enterprise value assumed 2009 produc- tion of 14.2 million light vehicles by all automakers in North America, Delphi said. Last month, GM, Delphi’s largest customer, predicted that amount would sink to about 10.5 million. To cope, Delphi wants to eliminate health care and life insurance benefits for salaried retirees and certain payments to a retirement savings program for some salaried employees. Those moves would save more than $70 million annually and would erase more than $1.1 billion in liabilities from Delphi’s balance sheet, the supplier said. If the court approves, the benefits will end after March 31. Separately, Delphi said it received on Jan. 30 a $50 million advance on the $300 million GM had agreed to give it by June 30. GM also has until Feb. 27 to agree to give Delphi an additional $50 million by the end of June, bringing those payments to $350 million. If GM does not agree to the increase, then it must give Delphi $50 million of the $300 million by Feb. 27 and allow Delphi’s minimum liquidity to drop from $100 million to $50 million without violating the companies’ agreement. Delphi filed Chapter 11 bankruptcy in 2005 and was ready to exit in April. But equity partners backed out, leaving the supplier scrambling for a new plan.c ISUZU How a brand slowly faded away in U.S. continued from Page 3 NAMAD chief Damon Lester: Minority dealerships backed by government guarantees can’t get loans. U.S. operations. John Frith, head of retail channel solutions at dealership consultant Urban Science, said Oldsmobile dealers had to shut down completely. “Isuzu will keep its service business going for a while,” Frith said. “It softens the blow. It’s not just turning off the income stream. “The Isuzu plan works pretty well because it is considering the effect on the dealers,” he added. “The manufacturer and dealer group are working together. You need a long enough lead time so you can serve the customer’s interest and minimize the impact on the dealer.” But applying the Isuzu model to Saturn would lead to “disastrous legal effects,” said analyst Jim Hall of consulting firm 2953 Analytics in suburban Detroit. “It’s not applicable to Saturn,” Hall said. “Every Saturn is a standalone. In some cases it is the absolute antithesis of Isuzu. In Saturn’s case you would be starving them of a facility.” Minority dealers struggle to get loans Arlena Sawyers After years of pruning the product lineup, Isuzu dealers were left with only the five-seat Ascender, above, and the i-280 and i-350 small pickups. On Feb. 1, only 418 vehicles were in dealer inventories. shrivel. After that, Isuzu relied on versions of GM platforms. But in December 2005, GM said it would kill the seven-seat Ascender, which accounted for nearly one-quarter of Isuzu’s sales. The Ascender was based on the Chevrolet TrailBlazer platform. In the end dealers were selling only the five-seat Ascender and the i-280 and i-350 small pickups based on GM’s small pickup platform. On Feb. 1, there were only 418 vehicles in dealer inventories. Isuzu Motors America LLC and Isuzu North America Corp., with headquarters in Cerritos, Calif., have 107 employees to handle service, parts and administrative support. No more layoffs are planned, said Maloney, 60, who has been president of Isuzu Motors America since 2002 and will stay on. “We will remain here to support our customers and our dealers throughout,” he said. Dealers have spent the year winding down their new-vehicle sales. Many were sad to lose the brand. “Isuzu was a very good product. We hated to see it go,” said John Jammal, fixed operations director at World Car Isuzu in San Antonio. World Car signed a five-year agreement to provide parts and service. Jammal expects steady business. Isuzu customers are “maintenanceconscious,” he said. Jammal said he is happy with the way Isuzu wound down the brand. “With the years of knowing in advance, their response as far as warranty and parts was adequate,” he said. pairs above a certain dollar limit though mileage and length of ownership limits remain. Isuzu’s 2003 through 2008 models have a 7-year/75,000 mile powertrain warranty. Models sold after Jan. 31 still carry the warranty starting from the sell date, Maloney said. Dealers also will receive incentives of up to $9,500 on Ascenders and $6,000 for pickups sold after Jan. 31. After announcing plans to end sales, Isuzu offered to pay a signing bonus to retailers who agreed to become service dealers. The company paid bonuses of $1,000 per vehicle based on the average of the last four years of sales. “It’s not like we will become wealthy,” said Roy Greenblatt, whose three Isuzu dealerships in New Jersey became parts and service points. “But if you’re open anyway and all you have to do is stock parts, it’s really easy.” c asawyers@crain.com Long slide Isuzu’s U.S. sales have been on a long slide, plummeting from 103,937 in 1999 to 4,758 in 2008. The company announced it is pulling out after years of difficulty getting new products from Japan. In 2002, Isuzu’s bosses in Tokyo decided to concentrate on commercial trucks in emerging markets and let Isuzu’s once-lucrative light-duty vehicle business in the United States More leeway Isuzu has given dealers more leeway to approve warranty repairs, Jammal said. Dealers no longer need district-level approval to make re- SALES After a deep dive, is U.S. market stable? continued from Page 1 Retail floor? Some automakers and analysts say the U.S. retail sales rate may have hit bottom after stabilizing for the past four months. RETAIL SALES, ANNUALIZED RATE buy automobiles. We’re seeing some minor thawing occurring, but it is not nearly enough.” Some of that minor thawing is occurring at GMAC Financial Services, which is starting to lend money to dealers again. Hobbled by a cashflow crisis in November and December, GMAC wrote virtually no loans for GM car buyers. In January, GMAC tiptoed back into consumer lending, writing about October November December January Source: J.P. Morgan 8.4 million 8.2 million 8.2 million 8.8 million percent of their loans. But consumer credit generally remains tight, and Ford senior economist Emily Kolinski Morris said industry sales are likely to “limp along” for some months still. Though Ford is counting on improvement during the second half of 2009, she noted that turning points are notoriously difficult to forecast. “What we’re looking for at this point is stabilization,” Kolinski Morris said. “You have to stop falling before you can start rising.” 5 percent of GM vehicle buyers’ loans. Now GMAC is encouraging dealers to apply for consumer loans, and GM executives predict the captive could finance as much as 20 Skeptics Some auto executives are skeptical that a recovery will occur soon. “Right now, we have no sign when the industry can improve, actually,” said Stefan Jacoby, CEO of Volkswagen Group of America Inc. And Chrysler co-President Jim Press contends that current sluggish sales are the new norm. With a 55 percent sales decline, Chrysler had the steepest loss of any carmaker in January. “We need to recalibrate where the market is and stop dreaming about pent-up demand,” Press said. “Looking at the economy and taking a realistic view of the credit situation, there’s not a lot of reason to think the entire industry is going to have a lot of growth. We want to operate in a conservative manner.” c Richard Truett, Bradford Wernle and April Wortham contributed to this report Even when minority-owned auto dealerships get government guarantees for loans that they need to operate, banks still turn many of them down, says the head of the largest minority dealer group. Damon Lester, president of the National Association of Minority Automobile Dealers, says he knows of half a dozen dealerships that did not get loans even though they qualified for a loan-guarantee program run by the federal Small Business Administration. Lester calls those rejections “disheartening.” Many other distressed minorityowned dealerships do not qualify for the program, Lester adds, because they have annual sales of more than $29 million, the eligibility cutoff. “Mechanisms within the Small Business Administration still are not providing that avenue of funding,” Lester told Automotive News. “That’s another level of discussion that needs to take place on Capitol Hill.” A Small Business Administration spokesman did not respond to a request for comment. NAMAD represents minority entrepreneurs who own about 2,100 U.S. new-vehicle dealerships, nearly 10 percent of the to
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