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GM Sees $7 Billion Delphi Hit

Nat Worden

General Motors (GM Quote) shed more light on its ongoing entanglement in Delphi's bankruptcy on Thursday, even while the automaker added yet another wild card to its precarious turnaround efforts.

The company said in a filing with the Securities & Exchange Commission that it estimates its exposure to Delphi's bankruptcy will amount to $7 billion. Previously, it estimated its exposure around $6 billion to $7.5 billion. Last year, GM recorded roughly $6 billion in charges related to the bankruptcy of its former subsidiary and chief auto-parts supplier.

"GM continues to expect that the cost of these reimbursements will be more than offset in the long term by its savings from reductions to the $2 billion price penalty it now pays Delphi annually for systems, components and parts," the company said in the filing.

Delphi's bankruptcy has been complicated by tough negotiations on wages and benefits for hourly workers between the company and the United Auto Workers union. The situation poses a risk to GM, which is preparing for its own negotiations with the UAW on its master labor contract with the union this fall. Any breakdown in talks threatens to result in a strike, which has the potential to sap the automaker's liquidity position and cripple its already tenuous financial position.

GM said in the filing that it has received proposals from Delphi and the UAW that "provide a basis for continuing productive negotiations." Its updated estimate of its exposure to the bankruptcy suggests the automaker sees new visibility on the situation and is moving toward removing a cloud that has hung over its restructuring efforts amid growing impatience on Wall Street.

"It sounds like there's finally a settlement coming soon," says Burnham Securities analyst David Healy.

Separately, the company disclosed that it received a request from the SEC for accounting documents related to its derivative trading of foreign exchange and commodities contracts. After a series of accounting restatements and probes into its practices from federal regulators, GM's financials are facing heightened scrutiny from investors.

"GM will continue to cooperate on this and all other SEC matters, and is preparing to provide the requested information," the company said in the filing.

GM also said it "believes that a sale of Allison Transmission is probable, subject to union, regulatory and other approvals," but didn't name a buyer or a price tag.

Shares of GM were recently trading down 25 cents at $31.18.