When Delphi Corp., the struggling auto parts giant spun off by General Motors, goes to bankruptcy court Tuesday, it will be routine in appearance–but not in symbolism.
This could be the first step in the unwinding of another American industrial tradition, the era of the privileged and protected blue-collar assembly-line worker.
If Delphi, which filed for Chapter 11 protection on Saturday, gets what it seeks in wage and benefit reductions from union members, the pay for members of the United Auto Workers union could shrink to as little as $10 an hour from the current $27. Their benefits almost certainly would drop as well.
Those drastic cuts would come not only as a blow to thousands of Delphi workers, they also could set the pattern for negotiations between the union and the Big Three domestic automakers, which for years have struggled to find ways to lower their costs on the assembly line.
“In one fell swoop, U.S. auto workers are going from being solidly in the middle class to being part of the working poor by earning $10 an hour,” said Harley Shaiken, a University of California-Berkeley labor expert.
If GM can’t get concessions from the UAW when it negotiates a new contract in 2007, analysts are raising the possibility of what once seemed impossible: General Motors in bankruptcy.
GM “ultimately needs to shrink,” John Novak, an analyst at Morningstar Inc., told Bloomberg News. “The question is, can they do that in or outside of court?”
The competitive issues bedeviling the auto industry are the same coursing through much of American manufacturing. In the era of globalization, in which non-union Japanese car companies are entrenched in the U.S. and Chinese factories can produce goods at cheaper prices, the high cost structure of U.S. companies needs to come down.
GM isn’t out of options. For one, it could sell its GMAC finance unit because it generates most of the profits and cash flow, said Mesirow Financial economist Diane Swonk.
But “after that, all bets are off,” Swonk said of the bankruptcy potential for GM.
GM refused to bail out Delphi, its biggest supplier, rolling the dice that Delphi will continue to provide parts during reorganization. GM is Delphi’s biggest customer, accounting for nearly half its $28 billion in sales.
Delphi, which lost $741 million in the first half, says it will close or sell several of its 45 North American plants and cut thousands of jobs as it restructures.
Delphi, once GM’s parts operation, was spun off to investors in 1999. With Delphi in trouble, GM could find itself responsible for as much as $11 billion of the company’s pension and health-care obligations.
By not helping Delphi, GM is warning the union to brace for tough talks two years from now, when the four-year contract ends, said Burnham Securities analyst David Healy.
“The Delphi action means negotiations on the 2007 contract with the UAW are under way,” Healy said. “The union has to make concessions because GM can’t keep losing money at the rate they are. The small print in the GM financial statements says that in 2004 its labor cost was $78 an hour with benefits.”
GM lost $1.64 billion in the first half, with losses at its North American auto unit wiping out profits at GMAC.
Even if GM doesn’t seek bankruptcy, the UAW faces growing pressure to give back big chunks of the wages and benefits it has won in the last 70 years in order to save U.S. jobs.
“The power of the union has been altered, and their negotiating power is gone,” said David Cole, chairman of the Center for Automotive Research.
“Their wages and benefits are now going to be defined by the bankruptcy judge, which basically means wages and benefits will be defined by the global market where if you aren’t competitive, you have a problem.”
UAW President Ron Gettelfinger, who Saturday described Delphi’s filing as “an extremely bitter pill,” had no additional comment Monday.
The UAW said it has retained the New York law firm of Cohen, Weiss and Simon LLP to represent it in bankruptcy proceedings. The firm has represented the UAW before and airline and steel unions in bankruptcies.
GM has pressed the union since April to pay more out of pocket for health care and says it will cut 25,000 UAW jobs over the next three years, mainly through attrition.
Labor expert Shaiken said high productivity and low wages in countries such as Mexico and China are shaping wages in the U.S, where auto workers in the future may not be able to afford the cars they build.
“It’s a dramatic statement that the global economy is coming home,” Shaiken said. “This may not be the end of the story. Eventually, they may ask them to match [wages in] China. This is essentially saying you’ve got to match global wage costs.”
Jim Hossack, a vice president at industry forecaster AutoPacific, said that for decades the domestic automakers gave in to the UAW to avoid costly strikes, despite knowing that judgment day would come.
“It was die now or die later and they chose to die later–but later is here now,” Hossack said. “It used to be that when you joined the UAW you were set for life, but those days are coming to an end because the compensation isn’t competitive with the alternative sources, whether it be Japanese, Korean or Chinese.”
Swonk says the impact of Delphi’s bankruptcy will fall heaviest in the Midwest, where many of its U.S. plants are located. Delphi is based in the Detroit suburb of Troy and has five plants in Michigan, where it employs 15,000. It has seven plants in Ohio and two in Indiana, including one in Kokomo that employs 5,300.
“It’s particularly hard for the state of Michigan, which was the only state that didn’t generate any new jobs last year,” she said.
While Chicago has replaced dwindling manufacturing jobs with growing employment in industries such as financial services, Swonk said, “You can’t just take a UAW worker and put them into those jobs.
“The Midwest economy can survive, but there aren’t a lot of alternatives for the people who are being displaced. That is the hardest part of this.”
In Dayton, Ohio, where Delphi has several plants and GM has a sport-utility vehicle assembly plant, the bankruptcy filing angered union supporters but drew little sympathy from others.
“General Motors and Delphi will get theirs in the end,” one union supporter wrote on the Dayton Daily News Web site. “I think it is terrible when a company can line its own pockets and not be grateful to the people who got them there to begin with.”
More Top Picks Best Amber Tinted Glasses For Sleep
But another reader countered, “America needs to wake up and realize that high labor costs are killing the American economy as a whole.”
In bankruptcy filings ahead of a court appearance on Tuesday, Delphi said it would ask the court to void its labor contracts if it fails to negotiate wage and benefit concessions from its unions.
Delphi said it would submit written proposals to its unions by Oct. 21 and, if there is no agreement, file motions Dec. 16 to void the contracts and eliminate retiree health benefits. Delphi has about 33,000 union workers in the U.S., 24,000 represented by the UAW.
All but a few hundred of the UAW workers were GM employees before Delphi was spun off in the late 1990s, and they earn the same wages and generous benefits as other UAW workers.
– – –
Delphi developments
Monday’s events
Standard & Poor’s Ratings Services and Fitch Ratings both lowered Delphi’s credit rating deeper into “junk” status. They cited the bankruptcy as well as Delphi’s labor costs.
Coming up
Tuesday–Hearing scheduled in U.S. Bankruptcy Court in New York. A permanent judge is expected to be assigned.
Oct. 17–Organizational meeting for unsecured creditors is scheduled in New York.
Oct. 21–Delphi has told the court it may provide the United Auto Workers and other unions with proposed changes it wants in their contracts. The company has asked the court to keep that information confidential.
Dec. 16–Delphi plans to file a motion rejecting union contracts if the unions haven’t agreed to and ratified changes and plans to eliminate retiree medical and life insurance for union-represented retirees. The company eliminated health-care benefits for salaried retirees over age 65 earlier this year.
Jan. 17–Delphi has proposed a court hearing on its motion.
Source: Filings with U.S. Bankruptcy Court, Associated Press
– – –
Delphi at a glance
Based in the Detroit suburb of Troy, Mich., Delphi has struggled to make a profit since GM spun it off in 1999. It lost $4.8 billion in 2004 and nearly $750 million in the first half of this year.
Chairman and CEO: Robert S. “Steve” Miller
Employees: 185,000
North American plants: 45
U.S. plants: 31 in 13 states, including five in Michigan, seven in Ohio and two in Indiana
Assets: $17.1 billion
Debt: $22.2 billion
Unfunded pension liabilities: $4.3 billion (at end of 2004)
Source: baiduhai
———-