Features » June 7, 2006

Delphi Dodges Union Contracts

Bankruptcy is the newest tool in the corporate battle against workers

By David Moberg

The UAW union hall in Sandusky, Ohio. Six of the 10 Delphi plants set for closure or sale are in Ohio.

The Delphi Corporation auto parts plant where Brian Stover works bears little resemblance to the industry’s iconic assembly lines. One of the largest integrated circuit plants in the country, the quiet, microscopically clean complex of high-tech fabrication machines in Kokomo, Indiana produces critical components for today’s electronically sophisticated vehicles. That gives Stover, a skilled maintenance worker, a rare measure of job security in a rapidly changing industry.

But Delphi is also at the cutting edge of menacing change for auto workers. Last October, the company—the parts division of General Motors until it was spun off in 1999—declared bankruptcy and proposed cutting workers’ jobs and wages by roughly two-thirds. Despite efforts to draw GM into deals that would at least cushion the blow for current Delphi workers, in late March Delphi asked the bankruptcy court to void union contracts and impose slightly less draconian cuts. And in a move that could shut down GM as well, unions for 34,000 domestic Delphi employees, primarily the United Auto Workers and the Communications Workers, are threatening to strike in June.

Delphi’s assault on its workers through bankruptcy proceedings may prove a defining moment for the industry. Broadly integrated giants once dominated the industry, steadily increasing productivity, but also—after unionization in the ’30s—sharing some of that growth with workers. Now the industry has become more fragmented, competitive and global, and companies with no—or weak—unions set the patterns.

Globalization has reshaped the auto industry in ways that contributed to the Delphi crisis. Companies have moved operations out of the country: Only 33 of Delphi’s 160 plants are now in the United States, and the company now plans to eliminate all but eight of those remaining. Since 2000, even as vehicle sales have remained stable, auto parts employment in the United States has dropped by more than one-sixth, mainly from offshoring. And the trend continues: General Motors and Chrysler both recently announced expansions in China.

Globalization cuts both ways

Six years ago, 840,000 workers made auto parts in the United States; today, there are only about 660,000. But as Sean McAlinden of the Center for Automotive Research argues, the industry is likely to stabilize at 400,000 to 500,000 jobs because it makes sense to produce many parts domestically, close to final assembly and consumer markets. However that doesn’t mean those jobs will continue to provide a comfortable living for auto workers.

While U.S. companies have been moving overseas, foreign automakers have also been increasing their investment in the United States, and sales of their American-made products have been increasing even faster than those of imports. As foreign-owned final assembly plants opened in the United States, foreign-based parts suppliers also expanded here.

The United Auto Workers once hoped foreign manufacturers would make such investments, but it didn’t work out as they intended: Most foreign-owned plants are non-union and located in the South. American auto companies have also turned increasingly to other domestic parts makers, both non-union companies and unionized plants with low wages. “What caught Delphi is the wage structure, not in China, but down the street” in other parts plants, says David Cole, chairman of the Center for Automotive Research.

As the union share of the auto industry shrank, from roughly 60 percent of the workforce in the early ’80s to about 30 percent now (even less for parts workers), Chrysler, Ford and then GM spun off their parts divisions. They hoped to reduce their own parts costs by pitting suppliers against each other and ultimately undermining the union contracts. As GM’s spinoff Delphi ran into problems last year when GM sales slumped (without sufficient diversification in Delphi’s customer base to compensate), raw material prices jumped and GM’s demands for price cuts escalated sharply.

Delphi blamed its problems on the higher wages, benefits, job protections and legacy costs, especially for retiree healthcare, that it inherited from GM. It does pay more than most competitors—about $27 an hour (total compensation costs of $45 an hour or more) compared to around $15 to $18 an hour (total cost of $28). Now Delphi wants to cut wages to $22 an hour, then to $16.50 next year.

Delphi does have a competitive wage disadvantage. But with more than $3 billion in cash and credit on hand, it was not really bankrupt. Arguably, Delphi’s problem stemmed from GM’s failure to design cars that could command its historic premium in the marketplace. Its cars even sold poorly with huge consumer rebates. Also, at least eight other lower-wage auto parts companies have declared bankruptcy in the past couple of years, suggesting deeper industry problems, like over-capacity and an unrealistic price squeeze from companies like GM.

Now, according to Stover, who holds a master’s degree in management and barely lost the last election as shop chairman of his UAW local, Delphi managers are trying “to break unions and reduce labor costs instead of managing the business and looking internally at what they’re doing wrong.” They’re attacking employees, rather than working with them to solve problems. “It’s like the old adage,” Stover says. “The beatings will continue until morale improves.”

Delphi angered workers like Stover by declaring bankruptcy only on domestic operations, shielding its huge and profitable overseas investments. But “where did that money come from?” Stover asks. “Out of U.S. operations.” Even among its U.S. factories, only a few were big money-losers, and most—like the Kokomo plant—were profitable.

And what about those “legacy costs” for healthcare and pensions? Stover says that, starting in 1984, the union agreed to concessions and cost containment clauses in every contract to pay for those commitments to workers. “Where’s that money now?” he asks. “[It’s] in China, Korea and other countries, making everyone else look profitable. What happened to the money and benefits I’ve been giving up every year?”

Nationwide consequences

In bankruptcy court, the UAW is arguing that Delphi is violating bankruptcy law, by putting corporate problems primarily on the backs of workers, as well as acting prematurely, since Delphi doesn’t know how much it may save from an agreement negotiated with GM for buy-outs and transfers of Delphi workers to jobs at GM.

Rank-and-file autoworkers have been organizing through a new network, Soldiers of Solidarity, to conduct “work-to-rule” slowdowns to fight any concessions. Both the UAW and Delphi are also pressing GM to accept more financial responsibilities. But governments should be involved in a grand public strategy to keep auto production viable in the United States, as well as to maintain high wages for the entire industry.

The labor movement needs to use the Delphi crisis over retiree healthcare costs to rally support for a single-payer national health insurance plan that would benefit all workers. The UAW and some Democrats are proposing that the federal government cover some health care costs in exchange for the companies meeting goals on energy efficiency and new engine technologies.

Also, bankruptcy law should be reformed to make it tougher for companies to break union contracts. Ideally, global companies should not be allowed to declare bankruptcy simply on their domestic assets, but, at the least, Congress should require bankruptcy courts to take into account global operations, as Rep. John Conyers (D-Mich.) and Sen. Evan Bayh (D-Ind.) have proposed.

Expanded public financial support from all levels of government should be used as an incentive to push companies more aggressively to upgrade their manufacturing processes and implement new energy-efficiency and safety technologies. But, in exchange, the public should get a stake in the ownership of the companies, an agreement on promises for domestic production, and protection of both workers’ right to organize and standards of living.

The labor movement has recruited close to a majority of members of Congress in support of legislation to strengthen workers’ right to organize, particularly through verification of majority support shown by signed union cards. That would help the UAW overcome stiff employer resistance, but the union has the resources to organize far more vigorously than it has and needs to do so as part of a broader movement for workers’ rights here and abroad. Indeed, the Delphi crisis raises “the larger question of how to rethink the labor movement and the issues that can be put on the agenda, like healthcare and reducing work time,” argues York University professor and former Canadian Auto Workers research director Sam Gindin.

The repercussions extend far beyond Kokomo. “If Delphi can get the contract rejected through a false bankruptcy, tell me one corporation in the United States with a union contract that won’t do that,” Stover says. “It’s not just a Delphi issue. It’s a national issue.”

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• Reader Comments

  Delphi “proposed cutting workers’ jobs and wages by roughly two-thirds.”

  That just wouldn’t work. All the workers would leave Delphi and go to other jobs that pay more than the lower wage that Delphi is offering. Either the workers would go to other higher paying jobs, or the fact that the Delphi job at the lower wage is still the best job available to the worker is evidence that unions lead to workers getting paid more than the economic value of what the workers offer the employer. That’s what union-supporting legislation has done: It has led to a scenario in which Delphi employees were getting paid more than their economic worth, and now the proverbial chickens are coming home to roost.

  “Most foreign-owned plants are non-union and located in the South.”

  Why would those foreign companies avoid unionization? Could it be to avoid having to pay workers more than the economic worth of what they offer? 

  “Arguably, Delphi’s problem stemmed from GM’s failure to design cars that could command its historic premium in the marketplace.”

  Arguably, GM’s unionized cost structure raised its cost of capital, hindering its ability to invest as much in R&D;as did its competitors with lower cost structures. 

  “Also, at least eight other lower-wage auto parts companies have declared bankruptcy in the past couple of years, suggesting deeper industry problems, like over-capacity and an unrealistic price squeeze from companies like GM.”

  Perhaps if GM’s cost structure had been more competitive, it could have sold more and better cars, and it would not have put so much pressure on its suppliers that most are either bankrupt or near bankrupt.

  “Delphi managers are trying ‘to break unions and reduce labor costs instead of managing the business and looking internally at what they’re doing wrong.’ “

  It is possible for a company to do virtually everything right, yet if its cost structure causes it to be uncompetitive, it will not succeed. Delphi’s and GM’s problems flow from their cost structure, and their cost structure is bloated because of unions.

  “But ‘where did that money come from?’ Stover asks. ‘Out of U.S. operations.’ “

  The initial investments probably came out of the U.S. But those overseas operations were and are more profitable in and of themselves. And our tax laws create a disincentive to repatriate profits.

  MORE…

  Posted by jeffc on Jun 7, 2006 at 9:58 AM

  MORE…

  “And what about those ‘legacy costs’ for healthcare and pensions? Stover says that, starting in 1984, the union agreed to concessions and cost containment clauses in every contract to pay for those commitments to workers. ‘Where’s that money now?’ he asks. ‘[It’s] in China, Korea and other countries, making everyone else look profitable. What happened to the money and benefits I’ve been giving up every year?’ ”

  He asks “where’s that money now?” Then he answers his question with what is probably an incorrect answer. He is suggesting that the U.S. operations are hugely profitable, but the company has been funneling those profits to mask losses at overseas operations. That is an unbelieveable assertion. I don’t buy it, and he doesn’t support it.

  “Rank-and-file autoworkers have been organizing through a new network, Soldiers of Solidarity, to conduct “work-to-rule” slowdowns to fight any concessions.”

  Naturally, fight every effort to be paid an amount commensurate to your economic worth.

  Then the writer just goes off the deep end. More government, more government, naturally. Then this:

  “But, in exchange, the public should get a stake in the ownership of the companies, an agreement on promises for domestic production, and protection of both workers’ right to organize and standards of living.”

  The unsurprising leap to communism.

  Posted by jeffc on Jun 7, 2006 at 10:07 AM

  The union workers deserve what they get.  They are lazy and greedy and they think they are intitled to these jobs.  The funny thing is that most union workers are not even good workers.

  Posted by tina1 on Jun 7, 2006 at 9:05 PM

  “But, in exchange, the public should get a stake in the ownership of the companies, an agreement on promises for domestic production, and protection of both workers’ right to organize and standards of living.”

  Or leading more accurately to a real fascism, unlike the faux fascism the left is continually saying we are about ready to slip into.

  It is amazing how “progressives” of all strips want more government control over the economy, no matter how disastrous such policies have been in the past.  Although it isn’t clear that we can have liberty with a free market economy, it is increasingly clear we can’t have it without a free market.

  Posted by chopper on Jun 17, 2006 at 4:39 PM

  A huge irony in all this is that the individual who organized the bankruptcy of Delphi--namely, Felix Rohatyn of Lazard investments--is a very big operator in the Democratic Party.  He was Bill Clinton’s ambassador to France after the death of Pamela Harriman, and is basically the “political godfather” of the so-called Democratic Leadership Council--the “new” Dems who spurn the old alliances with farm and labor, mesmerized by the chimera of the speculative “New Economy”.  Lazard was also at the center of the bankruptcies of Braniff, PanAm and Eastern Airlines, as well as Bethlehem and Weirton Steel.  It provided the startup capital for Enron, which then took a wrecking ball to the regulated utilities which served the public interest adequately for decades.  We also recall Rohatyn’s role in looting the coffers of New York City in the contrived 1975 “bankruptcy”.  But Rohatyn’s fascist roots run deeper.  Lazard, along with its associated Bank Wurms, was cited by US intelligence services during WW II as being the principal backers of Hitler in France. (This phenomenon was known as “Synarchism”.) A specific individual cited, Andre Meyer, was Rohatyn’s sponsor and mentor when he relocated from France to the US.
  To those baby boomers who cavalierly scoff while America’s industrial base is raided and ransacked by hot money interests from international finance, please consider this:  where will we be when the dollar bubble bursts, and we belatedly discover the need to mobilize our nation to start PRODUCING again?  Thanks.

  Posted by JoeCJ on Jul 22, 2006 at 1:56 AM

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