Delphi Corporation, Tronox, Reflect U.S. Economic Woes

The unique economic woes continue to ravage and embarrass businesses. Delphi Corporation, the largest company that supplies General Motors with parts filed for protection under Chapter 11 of the bankruptcy law but now it appears Delphi has crashed so much it is bailing on its corporate obligations.

Christopher Scinta of Bloomburg.com reports that Delphi Corporation took Chapter 11 bankruptcy in 2005 and added in that deal to survive a $4.35 billion loan. It seems that Delphi can no longer make good on its side of the situation.

As the article goes on to report Delphi has filed with bankruptcy court to discontinue paying health benefits to retired executives who were salaried. This move would save $70 million per year and would wipe off $1.1 billion from the corporate balance sheet.

Of price is that the need for auto parts on a domestic and global basis has dropped beyond that of recent memory.

General Motors who at one time was the parent company for Delphi has offered a $50 million advance payment to wait on the company gracefully close.

Delphi is a poster child for U.S. auto Parts suppliers who are seeking $25.5 billion in government assistance.

In a related story Reuters reports that a Federal Judge has runt trading on Tronox stock. It was agreed when Tronox sought protection under Chapter Eleven Bankrupt Law that they would be monitored based on their expenses.

Historically the cycle has been that companies get short on capital. Then because of that they cannot get credit. They cannot produce and then they cannot pay debts.

When a company would take Chapter Eleven Bankruptcy they were allowed to be protected from their debts and that gave them time to reorganize.

In our country today, however, there is no guarantee that the ability to produce product will result in sales. Therefore, companies are being watched much more closely and if they are not able to show progress then legal action such as that with Tronox will be taken.

Having owned a cramped business at one time, I can tell you that without the proper capitalization a business won’t have a chance. Further, the hardest thing to obtain is additional capital funding.

There is a very moral axiom in finance and that is “You must prove you don’t need a loan before you can get a loan.”

Reference:

http://www.bloomberg.com/apps/news? pid=20601087&sid=ak5KP0h6Fa2k&refer=home

http://www.reuters.com/article/rbssEnergyNews/idUSBNG39865520090206

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