"Although today's court filings are necessary to protect our businesses, we have not left the negotiating table," Delphi Chief Executive Officer Robert S. "Steve" Miller said in a press release. "We have made considerable progress in recent weeks, and we intend to stay at it until we are finished," Mr. Miller added, noting that the court schedule Delphi requested gives the parties more time to work on a settlement.

Both General Motors and the United Auto Workers took exception to Delphi's move, which it is taking while under bankruptcy-court protection. (See statements.⁴)

"We disagree with Delphi's approach but we anticipated that this step might be taken," said GM Chairman and CEO Rick Wagoner said in a press release. "GM expects Delphi to honor its public commitments to avoid any disruption to GM operations."

UAW officials called the plan a "misuse of the bankruptcy procedure" that is "a travesty and a concern for every American." They also warned that if Delphi is allowed to impose its terms that a prolonged strike is unavoidable.

Union officials had previously threatened to strike if Delphi went ahead with its plans to ask the court for permission to void its labor contract. On three previous occasions Delphi extended deadlines for such a filing, but had said it would file a motion Friday in bankruptcy court if no comprehensive labor accord, including deep wage cuts, had been reached with its unions.

More Pressure on GM

Delphi, which filed for Chapter 11 in October, has upped the ante in a situation being closely watched in the industry and on Wall Street. The fear is labor discord will result in a strike that could deal a devastating blow to General Motors" efforts to recover from a $10.6 billion loss in 2005. GM buys about $15 billion worth of automotive parts from the Troy, Mich., supplier annually.

GM shares, which have had a rough week, were off 6 cents at $21 in Friday afternoon trading on the New York Stock Exchange.

In addition to the labor motion, Delphi's unions are confronted with the company's plan to keep open only eight "core" plants in the U.S. out of 29 covered by master collective bargaining contracts. The plants being kept open under the plan employ about 18,000 workers, 12,000 of them on an hourly basis. The remaining plants will be sold, relocated or will wind down operations. Delphi has four North American plants not subject to a master collective bargaining contract.

Delphi's non-U.S. operations also are subject to closure and the company said it will sell or close down nearly one-third of its plants around the globe over time as the company exits businesses such as brakes and door modules to focus on products such as electronics, climate control and engine management.

In a press release, UAW officials said Delphi's "misuse of the bankruptcy procedure to circumvent the collective bargaining process and slash jobs and wages and drastically reduce health-care, retirement and other hard-won benefits or eliminate them altogether is a travesty and a concern for every American.

"Delphi's proposal goes far beyond cutting wages and benefits for active and retired workers. Delphi's outrageous proposal would slash the company's UAW-represented hourly workforce by approximately 75%, devastating Delphi workers, their families and their communities."

GM, which earlier this month announced a massive buyout offer that includes Delphi workers, was less cataclysmic in its comments on Delphi's announcement. "Motions to reject labor agreements are fairly common in reorganization proceedings and we have seen this approach play out to agreed resolutions in other cases," GM's Mr. Wagoner said.

"GM will continue to work with Delphi, its unions and the court to achieve a consensual agreement that makes sense and is financially viable for all of the parties. We believe the special attrition program we agreed to with the UAW and Delphi last week is indicative of GM's commitment to reaching such an agreement."

Rest of Industry Could Suffer

The Delphi case has major implications for GM and its suppliers. A strike at Delphi would cause GM to "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.

That's because Delphi provides critical parts not easily found quickly from another supplier. That would bring car and truck production at GM plants to a halt and affect other suppliers dependent on GM. Lear Corp. and American Axle & Manufacturing Holdings Inc. are two suppliers that rely on GM for a large portion of revenue. GM plant closures also could cause the failure of smaller suppliers with financial distress, further complicating production at larger suppliers and potentially affecting other auto makers.

Delphi is seeking relief from its largest customer. The supplier said Friday it will file a motion to reject unprofitable contracts with GM. Delphi's request covers about half of the company's North American purchase volume with the auto maker.

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 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," said Mr. Miller in the press release. "We simply cannot continue to sell products at a loss."

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At the same time, Delphi needs financial help from GM to make an offer that its unions -- the UAW and the IUE-CWA -- will accept. One reason Delphi's latest offer was given a thumbs down by the UAW is because the wages offered depended on GM subsidies that had not yet been agreed upon.

Delphi's latest offer, which was 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, legal services and training funding obligations. But without a GM subsidy, all production workers would get an immediate cut in pay to $12.50 an hour, and no dental coverage. That's essentially the same offer Delphi made in November but pulled off the table after heavy union opposition.

Delphi has 32,000 hourly workers, with 13,000 eligible to take an early retirement incentive the company and UAW agreed upon earlier this month. Another 5,000 will be taken back by GM. Delphi is hoping to further trim its hourly ranks by offering employees not eligible for early retirement the same offer GM employees are getting -- $140,000 for a worker with 10 years of seniority to essentially walk away from the company and $70,000 for those with less seniority.

GM said this week in its annual 10-K filing with the Securities and Exchange Commission that it estimates its benefit-guarantee exposure to Delphi in a range of $5.5 billion to $12 billion, with the actual number more likely close to the bottom end of the range. It's unclear how Delphi's latest demands could impact GM's financial obligations to Delphi.

White-Collar Staff Also Affected

Delphi also plans to reduce its global salaried work force, including officers and executives, by as much as 25%, or about 8,500 workers. The company said in a press release that up to 40% of current corporate officer positions will be eliminated over time. Salaried employees will also contribute more for health-care coverage.

The supplier said it will keep its hourly and salaried U.S. pension plans for current employees and retirees but wants to freeze them as of Oct. 1 and replace them with contribution plans. Current employees and retirees won't lose any accrued benefits. But the old pension program will be replaced with a new defined-contribution plan that will include employee contributions and company matches.

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

Write to Terry Kosdrosky at terry.kosdrosky@dowjones.com⁷