General Motors Corp. and Delphi Corp. are nearing an agreement with the United Auto Workers that would defuse a strike threat at the former GM auto-parts unit, four people with direct knowledge of the negotiations said.
GM, Delphi and investors led by Appaloosa Management LP have moved closer to an accord after the union said what pay and benefit cuts it would accept, said the sources, who declined to be identified because the talks are private. GM also said it expects to spend more on a settlement.
A Delphi strike would cripple production at GM, which buys more parts from its former unit than from any other supplier. Since Delphi filed for bankruptcy in October 2005, Executive Chairman Steve Miller has pushed the union for pay cuts, saying the company can't survive without competitive labor rates.
"GM and Delphi are highly motivated to resolve this sooner rather than later because they are the two parties bearing the cost of this uncompetitive labor situation," said Kirk Ludtke, an analyst with CRT Capital Management LLC in Stamford, Connecticut.
GM is "going to have to get a deal here, and it's going to be expensive."
Delphi had initially asked Delphi union workers, who are paid about $27 an hour under the UAW contract, to accept an hourly wage as low as $12.50.
The national average for a manufacturing worker is about $16.51 an hour and non-union parts workers without retiree benefits earn closer to $11 an hour, according to a February report by Sean McAlinden from the Center for Automotive Research in Ann Arbor, Michigan.
An agreement would pave the way for Delphi's emergence from bankruptcy, already delayed once this year after potential investor Cerberus Capital Management LP balked at union resistance to pay cuts. An accord may also allow GM to meet its goal of resolving the Delphi situation before the start of negotiations with the union in July on a new four-year contract.
Detroit-based GM, the world's biggest automaker, reported progress in the Delphi stalemate when it said Thursday it had raised its estimate for what an accord will cost.
"General Motors has received proposals from Delphi and from the United Auto Workers Union regarding support to be provided by GM as part of Delphi's restructuring, and believes that the proposals provide a basis for continuing productive negotiations," the automaker said in a regulatory filing.
A final agreement may be several weeks or more away as other issues remain, the people said.
Delphi spokeswoman Claudia Piccinin, GM spokeswoman Melisa Tezanos and Appaloosa President David Tepper declined to comment on prospects for an agreement. UAW spokesman Roger Kerson didn't return calls seeking comment.
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