General Motors GM said Tuesday that it's paying an undisclosed sum to buy back the global steering operations of former subsidiary Delphi to protect supply and try to help the parts maker emerge from bankruptcy court protection.
GM also said it's advancing Delphi an additional $150 million in credit commitments, on top of $300 million, to "support Delphi's near-term liquidity needs."
Even though GM faces its own liquidity issues — the automaker has asked the federal government for up to $30 billion in loans to help it weather the massive downturn in auto sales — it can't afford to let Delphi go under.
Delphi was a part of GM until it was spun off in 1999, and remains GM's largest supplier. It is GM's primary supplier of steering parts.
"They are bound together," says David Cole, chairman of the Center for Automotive Research. "They need the power steering systems, and so it's pretty important."
GM's cash problems aren't getting any better. On Tuesday, GM President Fritz Henderson said the automaker's European operations could run out of money in the second quarter unless they receive aid from governments there. That has prompted GM to consider all options for Opel, like selling more than 50% of Opel and giving up control of its primary European brand.
GM is looking for about $4 billion in aid from European governments.
Terms of the Delphi deal were not revealed. Delphi has been trying to sell the steering business to Platinum Equity for the past year, the company said, but that deal fell through.
GM spun off Delphi in an attempt to make it more competitive, hoping an independent company would be able to diversify its customer base and start making cheaper parts. But Delphi was hamstrung by high labor costs — its workers were paid the same as GM workers and operated under the same workrules.
Bob Remenar, president of Delphi Steering, said the company intends to continue operating as if it were a stand-alone business.
"Although the Steering business will, at least in the near term, be wholly owned by GM, a diverse customer base remains essential to Steering's long-term future," Remenar said in a statement. "Steering will aggressively pursue new business opportunities and technologies, and will retain its independent engineering capability."