Why do you care about Delphi financial trouble?

Imagine roadsides piling up with Chevrolets, Buicks, Pontiacs, Saturns, Hummers, Saabs, Cadillacs, and practically all GM-made vehicles in need of repairs and/or maintenance. These cars need replacement parts, but there are none available. Doesn’t this sound like scene from apocalyptic movie? Unfortunately, this could become a sad reality unless General Motors acts swiftly. Serious financial trouble hounds up Delphi Corp, GM’s giant auto parts maker, as its officials scramble for some last-ditch efforts to save the company from imminent financial ruin.

Delphi used to be General Motors Corp in-house parts maker. It produced almost every auto part for GM’s vehicles— auto electronics, tires, hood, engine parts, safety equipment, steering systems, car frames—just to name a few.

In 1999, GM spun off the Delphi Corp and made it a separate entity. Brisk business had kept Delphi afloat, but labor costs and rising car materials gradually chewed up most of its assets until it declared bankruptcy in 2005. Its competitors had been put out of business for these same financial woes.

Now, Delphi accrues $3.4 billion in bankruptcy loans termed debtor-in-possession or DIP. It will expire this year. This means that, unless its officials implement some fast stopgap measures, Delphi will go down the drain. Delphi’s financial woes have put GM in a tight bind. As much as it wants to, the parent company could not liquidate Delphi’s liabilities since GM is saddled with serious financial difficulties of its own.

If liquidation occurs, GM would have to absorb Delphi’s 159,000 workers and accrued liabilities ---- hook, line, and sinker. Ray Young, the chief financial officer of General Motors, said GM could not bail out Delphi. On one hand, General Motors desperately needs Delphi to for its car production. On the other hand, it cannot keep the money-losing Delphi plants.

So, unless large cash infusion occurs soon, Delphi will continue stand out like a sore thumb for GM.


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