In a statement, the UAW warned that if the court voids its contracts, "it appears that it will be impossible to avoid a long strike." But some of Delphi's creditors have warned that they will fight any agreement with the unions that leaves too little to repay debtholders.

The bankruptcy judge has scheduled a hearing for May 9 and 10, and the judge isn't likely to rule on the motion on labor contracts until early to mid-June. Any official labor action likely won't happen until then. Negotiations with Delphi's two main unions, which represent about 33,000 hourly workers, will probably continue in the meantime.

But unauthorized "wildcat" strikes could break out at one or more of the plants targeted for closure. Widespread strikes at Delphi would harm not only Delphi; GM, too, could "bleed enormous amounts of cash," according to a report this week from Merrill Lynch analyst John Murphy. Merrill estimates that GM would lose as much $8 billion of cash in just the first 60 days of a strike at the supplier.

For 2005, GM posted a loss of $10.6 billion, and it can scarcely afford a long shutdown. Other auto makers that depend on Delphi for components could suffer, too.

Separately on Friday, a federal judge approved an agreement between the UAW and GM that will require UAW-GM retirees to pay more for their health care. The deal, negotiated last fall, is projected to save GM as much as $1 billion a year.

Delphi, which had three times delayed filing to reject its labor contracts, said Friday that it had to act now to lower its labor costs while also laying out its vision of the company's future, a vision that has the company exiting key lines of business such as spark plugs, instrument panels, brakes and steering equipment.

GM spun off Delphi, the nation's largest auto-parts supplier, in 1999, hoping to retain it as a robust but independent supplier. But plagued by woes paralleling those at its former parent, Delphi filed for bankruptcy-court protection late last year.

Delphi said it plans to keep between eight and 12 of its 33 plants in North America. Delphi's non-U.S. operations also are subject to closure. Delphi said it will sell or close down nearly one-third of its plants around the globe over time as it focuses on products such as electronics, climate control and engine management.

Without new labor deals and plant closings, Delphi's board projects, the company will incur a loss of $12.1 billion from 2006 through 2010, according to an affidavit filed Friday from Delphi Chief Restructuring Officer John Sheehan. Delphi based its projections on expectations that GM's market share will fall from 25% to 23% during the period and that raw-materials prices will rise.

Delphi, based in Troy, Mich., plans to close plants in nine states. Michigan, Delphi and GM's home state, would be hit hardest, losing five plants and thousands of salaried and union positions.

For GM and its embattled chief executive officer, Rick Wagoner, Delphi's action complicates an already difficult situation. As part of its broader turnaround plan, GM has predicted savings of $1 billion on its purchasing costs in 2006. GM has also predicted it could save $2 billion a year if Delphi restructures and cuts costs. But Delphi's bid to cancel unprofitable supply deals with GM threatens to raise the auto maker's purchasing costs, at least in the short term.

"We need GM to cover a greater portion of the costs of manufacturing products for GM at plants that bear the burden of our legacy costs," Delphi CEO Robert "Steve" Miller said in a statement. "We simply cannot continue to sell products at a loss."

The supply contracts Delphi is seeking to reject cover about half of its North American sales to GM. Separately, Delphi wants to rework terms for more than 400 commercial contracts with GM that expired between Oct. 1 of last year and March 31 this year.

'We Disagree'

"We disagree with Delphi's approach, but we anticipated that this step might be taken," Mr. Wagoner said in a press release. "GM expects Delphi to honor its public commitments to avoid any disruption to GM operations." Mr. Wagoner went on to note that motions to reject labor contracts are fairly common in bankruptcy, "and we have seen this approach play out to agreed resolutions in other cases."

UAW President Ron Gettelfinger and Vice President Richard Shoemaker called the plan a "misuse of the bankruptcy procedure" that is "a travesty and a concern for every American." (See statements.⁴)

A committee of Delphi's unsecured creditors -- a group that represents bondholders, trade creditors and others -- has warned the UAW and others in closed-door negotiations that it, too, has a "strike price," if some creditors feel they are not getting what they should.

At a creditor's committee meeting on Feb. 16 at the New York offices of Delphi's bankruptcy counsel, Skadden Arps, one of the UAW's outside lawyers, Bruce Simon, told the committee its "only concern should be a viable Delphi, even if creditors only get four or five cents on the dollar," according to people familiar with the situation.

The committee responded angrily, venting about the union's comments in a meeting on Feb. 27. Richard Mason, a lawyer representing bondholder Capital Research & Management, told the UAW that five cents on the dollar was well below his clients' "strike price." He compared it to a wage that could prompt a strike by the union and warned that the committee could fight GM, Delphi and the UAW in the bankruptcy-court proceedings if it felt creditors were being unduly burdened.

Yesterday, holders of the stock and debt of GM and its General Motors Acceptance Corp. financing unit reacted positively to the Delphi news, despite the problems a strike could cause GM. In 4 p.m. composite trading on the New York Stock Exchange, GM shares were up 21 cents, or 1%, to $21.27. GM's long-term bonds maturing in 2033 rose to 74 cents on the dollar, up from about 73 cents on Thursday, and GMAC's bonds maturing in 2031 rose to 95 cents from 93 cents. Delphi's bonds showed little movement.

Growing Confidence in a Sale

Part of the enthusiasm was due to growing investor confidence that GM will be able to reach a deal to sell a majority stake in its profitable GMAC unit. Also, some investors were betting that any possible strike at Delphi is months away, giving both sides time to reach an agreement.

"This is a necessary step to get the UAW and GM to really put their cards on the table, it will force things forward," said David Feinman, a portfolio manager at Havens Advisors, a New York hedge fund, which owns some GM and GMAC bonds. "You can always reach an agreement -- they haven't thrown the hand grenade, they've only pulled the pin."

To avoid a clash with its unions, Delphi will need financial help from GM to make an offer that the UAW and Delphi's other major union, the IUE-CWA, will accept. One reason the UAW rejected Delphi's latest offer was that the wages offered depended on GM subsidies that hadn't yet been agreed upon.

Delphi's latest offer, revealed to union members this week, includes new health-care premiums and an immediate $5 cut in hourly pay to $22 for production workers and then a cut to $16.50 an hour in September 2007. Delphi workers not at a plant set to be closed or sold would be eligible for a $50,000 incentive payment in September 2007.

The offer also includes eliminating the jobs bank, which provides pay and benefits to idled workers, and other benefits, such as vision coverage and legal services. Without a GM subsidy, all production workers would get an immediate cut in pay to $12.50 an hour, and no dental coverage.

Buyout Program

Delphi, GM and the UAW last month agreed on an early-retirement and buyout program that could push about 13,000 hourly workers into retirement and transfer 5,000 back to GM. Delphi is hoping to trim its hourly ranks further by offering employees not eligible for early retirement the same offer GM employees are getting -- in essence, $140,000 for a worker with 10 years of seniority to walk away from the company and $70,000 for those with less seniority.

GM has said its benefit-guarantee exposure to Delphi falls in a range of $5.5 billion to $12 billion, with the actual number probably closer to the lower end. It's unclear how Delphi's latest demands could affect GM's financial obligations to Delphi.

The supplier also plans to reduce its global salaried work force, including officers and executives, by as much as 25%, or about 8,500 workers. And it proposes to cut as much 40% of current corporate-officer positions over time.

The supplier said it will keep its defined-benefit pension plans for current hourly and salaried employees and retirees but wants to freeze them as of Oct. 1 and replace them with defined-contribution plans.

Delphi said it hopes the reorganization plan will allow it to exit Chapter 11 in the first half of 2007.

Write to Jeffrey McCracken at jeff.mccracken@wsj.com⁹ and Terry Kosdrosky at terry.kosdrosky@dowjones.com¹⁰