Delphi Corp., the bankrupt auto-parts maker, Tuesday won permission to cancel health-care benefits for 15,000 retired salaried workers, as it tries to emerge from court protection amid falling vehicle sales.
U.S. Bankruptcy Judge Robert Drain in New York issued the ruling after witnesses for the Troy, Mich.-based Delphi testified the cuts were vital to its survival because its lenders demanded them. About 1,600 objections were filed by workers.
Ending the benefits will save $70 million a year and eliminate $1.1 billion of debt, Delphi said.
The company has said its value has fallen so much that it may be unable to cover debt accrued while in bankruptcy.
The termination of benefits takes effect April 1. Judge Drain allowed the affected retirees to form a committee to work with Delphi and determine if any in the affected group belong to a "subset" of vested workers who can negotiate over their benefits. Drain set a March 11 hearing to discuss the committee's findings.
The committee also will check if some retirees can qualify for a federal tax credit that pays 65 percent of their health care premiums if their pensions are ultimately turned over to the Pension Benefit Guarantee Corp.
Delphi Corp. has a manufacturing complex in the Town of Lockport. The number of Delphi's salaried retirees in Buffalo Niagara was not immediately available.
Salaried retirees had organized quickly to oppose Delphi's request to unilaterally terminate their benefits. They were notified early this month of Delphi's intentions, prompting them to hire lawyers and rush to meet a Feb. 17 deadline to file objections with the court.
A group called the Delphi Salaried Retiree Association sprang up and about 2,500 had joined as of Sunday. One of its coordinators is Jim Frost, the Lockport complex's former site manager.
Frost, who attended Tuesday's hearing, said he's angry that the court sided with the company but hopes some goodwill come from the retiree committee.
"They basically said that all our years at GM don't mean anything," Frost said.
Attorneys representing the retiree groups wouldn't immediately say whether they planned to appeal Drain's ruling.
"I'm disappointed that the court is allowing Delphi to terminate the benefits, but we're happy that the judge appointed a committee that may preserve the benefits of some retirees and explore the possibility of eligibility for the health care tax credit," said Dean Gloster, a San Francisco-based attorney.
Delphi salaried retirees hired before 1993 and their survivors currently receive health insurance benefits until the age of 65 when they become eligible for Medicare. Under the changes Delphi has requested, those retirees will be responsible for paying the full cost of their health insurance, which could amount to more than $1,000 per month for a retiree and spouse.
Delphi has described canceling benefits as a difficult but necessary step in order to emerge from bankruptcy. The auto parts supplier filed for bankruptcy in October 2005.
Delphi's bankruptcy lenders "have made it very clear that the company has a fiduciary duty to terminate the benefits," Delphi's lawyer, John Butler Jr., told the judge. "They simply will not support having discretionary liabilities of this magnitude on the reorganized balance sheet."
"The debtor, I believe, properly did not take this step for almost three years," Drain said. "Over the last two or three months their business has gone through such enormous adverse changes."
State Sen. William Stachowski, D-Lake View, who is chairman of the state Senate's commerce and economic development committee, was disappointed with the judge's ruling, saying he felt the bankruptcy law would safeguard the workers against having their benefits terminated unilaterally.
Stachowski said he understands the company is facing financial strain, but he also noted that Delphi has received support from the state in the past. "It would have been better if they negotiated these people instead of shutting the door," he said.
While Delphi is moving toward eliminating the salaried retirees' benefits, General Motors is talking with Delphi about taking back a select number of Delphi operations. But Delphi Executive Chairman Steve Miller cautioned that the discussions are "far from complete" and a deal isn't certain.
GM spun off Delphi a decade ago.
The Lockport site, with 2,100 hourly and salaried workers, is believed to be one of them.
Tuesday's ruling doesn't affect retirees who were covered by union contracts. Delphi's unions made wage and benefit concessions in their 2007 agreements with the company.