The US car industry is braced for possible supply disruptions and upheaval among parts-makers following the decision by Delphi, the components supplier, to seek bankruptcy protection.
The Michigan company, with annual revenues of $29bn and 180,000 employees, is the biggest manufacturer to file under Chapter 11 of the US bankruptcy code.
In a move likely to alienate employees who have been told they must sacrifice pay, pensions and healthcare benefits, the company has proposed a series of bonus packages that leave 10 per cent of the equity owned by senior executives.
Delphi sought court protection at the weekend after failing to secure concessions from its unions or financial support from General Motors, its former parent and biggest customer.
The restructuring is expected to trigger a wider drive among parts suppliers and carmakers to drive down labour costs and consolidate production, potentially unleashing the kind of cost-cutting that has swept through the US steel and airline sectors.
Both Ford and GM have raised the prospect of job losses and factory closures.
GM, the world's biggest carmaker, is exposed to costs of up to $11bn for pension and healthcare promises made to former workers now at Delphi, which it spun off six years ago. GM said it could not accurately calculate the liability, if any, but its best guess was close to the $6bn that Delphi had unsuccessfully sought from GM to avoid bankruptcy.
GM's refusal to rescue Delphi may indicate a new tough approach by chief executive Rick Wagoner, who has been negotiating all year with the United Auto Workers on healthcare costs. "GM's finally got resolve," said Brian Johnson, motor analyst at Sanford Bernstein.
Delphi said in a court document that a "substantial segment of its US business operations must be divested, consolidated or wound down through the Chapter 11 process".
The company aims to complete a restructuring by early- to mid-2007, including cutting the $64 an hour all-in cost of its workers to match competitors that pay just over one-third of that.
"We simply cannot afford to continue to be encumbered by high legacy issues and burdensome restrictions under current labour agreements that impair our ability to compete," said Steve Miller, chairman and chief executive.
Delphi's Chapter 11 filing applies only to its US operations. Mr Miller said that Delphi's worldwide operations would continue without interruption.