Regular BTP readers are familiar with Delphi, the country's largest auto parts manufacturer that was formerly a division of General Motors. Delphi has been noted here in the past because it was regularly reported that the compensation of their UAW members was $75 an hour. Delphi got this figure by averaging its costs for pensions and health care benefits for retirees over the hours worked by its current work force. In other words, the $75 an hour figure had nothing to do with the current workers were actually earning. Delphi got bad news yesterday when its private equity suitor, Cerebus Capital Management, apparently backed out of a takeover plan for the bankrupt company. According ot the NYT article, Delphi's managers are not worried, because they expect that another buyout plan will quickly be put forward. I have no secret line into the negotiations at Delphi, but it's reasonable to believe that Delphi's management would express confidence in another buyer coming forward, whether or not such confidence is warranted. The company's ability to sustain credit lines from banks and suppliers depends on their confidence that Delphi will emerge from bankruptcy as a viable company. This means that Delphi's management has a strong incentive to exaggerate their confidence in reaching a takeover agreement. It also means that the NYT should have been more skeptical than to simply assert in a headline "Delphi Drops Finance Plan But Expects Another Soon."
--Dean Baker
