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WEDNESDAY, DECEMBER 20, 2006
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Delphi investment good sign for local plants

By Eric Fleischauer
eric@decaturdaily.com · 340-2435

The proposed infusion of $3.4 billion in private equity into Delphi Corp. may bolster the pensions of area retirees, but most doubt it will save the Limestone County plants, already ravaged by bankruptcy, from Delphi’s discard pile.

Delphi’s discard pile, however, may turn out to be a prime location.

Once employing more than 4,200, the plants — one of which is mothballed — now employ fewer than 1,400. About two-thirds of those, said the local union president, are new hires making less than half the wages of those they replaced.

The most promising aspect of the news may involve its interplay with the recently announced 2006 bookings in steering and halfshaft products. Plant 23 in Limestone County is one of two Delphi plants nationwide that build halfshafts. The plant is considered one of the most modern in Delphi’s arsenal.

As of Dec. 6, Delphi had $3.3 billion in bookings for steering products, the second largest in its history, and it is on track for a 50 percent gain over 2005.

Maybe most important, one-third of those bookings were previously held by other suppliers. The bookings, most in the form of five-year contracts, are spread over 16 customers globally and no single customer represents more than 50 percent of the total business.

Included in the steering business are halfshafts, the Limestone County plants’ forte.

A halfshaft transmits power from a car’s differential to its wheels. Most halfshafts are used in front-wheel-drive vehicles. Delphi sells most of its Limestone County halfshafts to General Motors, but booming Hyundai is also a customer.

Delphi has said it plans to shed itself of its steering systems division, which it deems “non-core.” Of its 29 domestic plants, Delphi has said it wants to close or sell 21, including the Limestone County plants.

David Cole, chairman of the Ann Arbor, Mich.-based Center for Automotive Research, said he suspects the decision by Appaloosa Management LP, Cerberus Capital Management LP and other private equity firms to invest money in the bankrupt company had a lot to do with the steering-product success.

“The bookings really increase the value of Delphi,” Cole said. “The financial folks would operate part of Delphi and sell part of Delphi. The more value in those (steering) businesses, the better it is for Delphi going forward in terms of selling and getting a return on those investments.”

That’s nice, but how does it help Limestone County?

It helps this area — and Delphi employees particularly — by making it more likely that the eventual buyer of the steering plants will have steering systems as its main focus.

"If someone like a TRW (Inc.) that's already in the steering business bought it, they would take advantage of the assets that are a part of Delphi," Cole said. "The people that are a part of Delphi would become a part of their team."

And skills learned at Delphi would remain valuable, driving up wages.

Limestone doubtful

Cole said he doubts the new investors would decide to keep Limestone County in the Delphi fold, but he would not rule it out.

"I think that's always a possibility," Cole said. "It's not over until it's over on whether it will be spun out."

Being on the fringe of Delphi's core business, though, might not be as good for the area as being in the center of another company's business.

"It's often better to work with somebody in their primary line of business," Cole said. "If (steering) is the focus of the buyer's life, that's a pretty good deal for the employees. You're now center-stage with the core of the company. That would be extremely positive for your Delphi employees."

Another analyst was even more skeptical that the Limestone County plants would keep the name Delphi.

Erich Merkle is director of forecasting for Grand Rapids, Mich.-based IRN Inc., a market analysis and strategy development firm that focuses on the auto industry.

"Being the betting man that I am — how can you forecast the auto industry and not be a betting man — I would still be surprised if Delphi keeps the steering business," Merkle said. "They will likely sell that business off, along with a number of their other old-line automotive operations."

But GM needs the parts, leading Merkle to query whether GM itself might re-absorb steering plants, at least on a temporary basis.

"That's a possibility, at least until they can find a buyer," Merkle said.

Cole and Merkle agree that there is plenty of value left in Delphi, especially since it shed itself of high-wage employees.

"If you take away the old-line automotive businesses, Delphi is an incredible company," Merkle said.

"It's pretty profitable without those, a pretty formidable competitor."

Cole pointed out that even the "old-line" businesses, like halfshaft production, can command a premium in the auto market.

"(Halfshafts) are hardly a commodity. These are precision-manufactured components," Cole said. Sale of the plants to a company focused on the business "could be a really terrific thing for the people there."

Tom Hill, president of Limestone County Economic Development Association, said he sees the $3.4 billion investment as a positive for the Delphi plants, but as far as he knows the plan to sell them has not changed.

"At this point, we think the sale of the steering division would be a positive," Hill said.

Hill said Delphi is still Limestone County's largest employer. It is followed by TVA's Browns Ferry with 1,120 employees, Pilgrim's Pride with 810 and the Target distribution center with 750.

More jobs moving

United Auto Workers Local 2195 President Terry Scruggs said his main concern is that the investment will not change the end result of Delphi's reorganization bankruptcy. That result, he fears, will be more jobs moving to countries offering cheap labor with minimal protection for workers and the environment.

Even Plant 23 is vulnerable to that fate. Delphi placed the only two domestic plants making halfshafts, in Limestone County and Saginaw, Mich., in the high-risk Automotive Holding Group even before it filed bankruptcy. Its halfshaft plants in China, Korea, Mexico, Spain and Brazil, however, are going strong.

Merkle said he thought foreign companies may play a part in the Limestone County plants' future, but production is likely to stay put.

"There's a lot of companies out there, from China and India and Europe, that might be looking to increase their exposure here in the North American market," Merkle said. "(Buying) those plants would give you pretty instant access to the North American market. It would give them exposure to General Motors and even Hyundai, since your plant sells to Hyundai in Montgomery," Merkle said.

"They'd be buying a customer."

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