The bankruptcy of Delphi
, an auto parts maker that spun-out of General Motors several years ago, may portend to further changes in the U.S. manufacturing markets. There are two problems facing U.S. manufacturers today, first is that current labor costs are uncompetitively expensive, but probably not as much as some would argue since foreign car manufacturers have been opening up new manufacturing plants in the US. Secondly, the high costs of providing benefits, such as healthcare for current workers and pension and healthcare for retired ones, will not allow these old companies to survive and are making their products too expensive.
Among the thorniest problems will be deciding who is responsible for post-retirement and health-care benefits that GM, which shares many of the same problems that sent Delphi into Chapter 11, has said could cost it up to $11 billion.
The broader issue, however, is whether Delphi will get a court-ordered mandate to tear up its labor contracts with the UAW and set dramatically lower wage and benefit levels for its U.S. hourly employees.
Alluding to that possibility, UAW leaders said in a statement on Saturday that it would be "an extremely bitter pill" to swallow.
"I think this case is, in fact, a watershed. I think what it does is -- in the most dramatic way we've seen to date -- it introduces the wages of the global economy into Main Street in Michigan, Ohio and elsewhere," said Harley Shaiken, a professor at the University of California-Berkeley specializing in labor issues. "Delphi has essentially said: 'We need competitive wages.' Those wages currently are being set in China, not Flint, (Michigan)," Shaiken said.
I read recently that healthcare costs for each car that GM produces is around $1,500, a large proportion related to retiree benefits. This is absurdly high and is very telling in that US manufacturers cannot last very long with such high cost burdens.
Delphi claims that unskilled labor should cost around $10 an hour. Yes, this is true, but even for foreign car manufacturing plants in the US, wages are higher than that. So in any bargaining position, Delphi offers $10 per hour as opposed to the $27.50 per hour workers currently get paid, the union has to think long and hard on how they are going to deal with this. The United Auto Workers [UAW] has a big problem,
by stonewalling and not seeking concessions, they risk more and more bankruptcies where US manufacturers will essentially be able to tear up old union contracts, impose new wages and benefit packages and abrogate their responsibilities with retired workers by reducing their pensions and benefits that they were promised under the old systems.
Neither Gettelfinger [UAW president] nor any other leader from UAW headquarters was prepared to negotiate away hourly wages of $27.50 and replace them with $10-an-hour wages. Unfortunately for Delphi workers, that's what the company said is the value of unskilled assembly-line labor in the U.S. today.
And going through bankruptcy is not as difficult nor destructive as one may think. Companies can get rid of contractual obligations that no longer make sense but continue to operate, in many cases.
The company employs 185,000 worldwide, including about 33,000 hourly workers in the U.S.
Delphi has a good chance to emerge from bankruptcy because many of its 160 or so parts factories around the world have plenty of customers. And a post-bankruptcy Delphi won't have a labor agreement like the one it has now with the UAW, which put the company's U.S. labor costs out of whack. That's a problem the bankruptcy judge can fix if the UAW resists.
So now, the UAW has put themselves in a worse bargaining position than they were before. Now they have almost no bargaining power, since a judge will decide what will happen and its likely that Delphi will move even more parts manufacturing offshore. And, furthermore, they are losing their bargaining power with other companies in similar situations.
What is the union going to do? A Bank of America equity analyst raised the probability that GM will file for bankruptcy to 30% from 10% following the Delphi bankruptcy and GM shares fell 10% yesterday.
Perhaps as Delphi factories close, workers are fired, and others begin to receive drastically smaller paychecks, UAW leaders may realize such a scene is headed for GM, Ford and lots of UAW- represented suppliers. If so, Wagoner and GM's shareholders may be beneficiaries of a more realistic UAW.
Gettelfinger has to know that UAW members may be questioning whether it makes sense to belong to a union at all, if leaders no longer can guarantee above-market wages and benefits.
Unions are supposed to represent the interests of labor but how is labor's interest represented if one company after another files for bankruptcy, and uses this tool to rationalize their wages and benefits and then emerges with a lot more control over their labor costs, the union is essentially giving away its bargaining powers for nothing. Furthermore, the unions are completely ignoring their retirees. These people no longer have any leverage over employers and stand to lose when these companies cut their retirees pensions and benefits.
I do not think that the UAW has played their cards very well and it appears as if they have put themselves in an even worse position.
"The choice is no longer between keeping the same job or keeping the same job at a lower wage," GM Vice Chairman Bob Lutz told local radio on Monday. "The choice is now keeping the same job at less compensation or having no jobs at all in this country."
The wages decided by the bankruptcy judge will probably set a framework for all UAW negotiations going forward and this does not look good for the wages of these workers. It appears as if the only leverage that the UAW now has is to cripple the U.S. automobile industry with strikes that could hurt many many people if they don't get what they want. But do the 100's of thousands of auto and auto related workers want to do this? I guess that we will have to see how this plays out.