The Final Countdown: Delphi to Battle UAW in Court This Week
Delphi, the embattled auto-parts maker, is set to do battle in bankruptcy court this week. Delphi claims that its 33,000 union workers and 12,000 union retirees are burdening the company with insurmountable costs for salary, healthcare, and pensions. The average union worker at Delphi makes US$26 per hour; that number balloons to US$65 per hour when non-salary benefits are included. The company is looking to restructure, push some workers into early retirement, and cancel its labor contracts. The UAW has countered by preparing a strike vote if Delphi is victorious.
Delphi’s last offer to the union called for stepped pay decreases – salary would decrease to US$22 per hour immediately and US$16.50 per hour in September of 2007. Healthcare costs would be offset by the addition of higher premiums for coverage, payable by the workers rather than the company. This offer, however, is contingent on a subsidy from GM. Without it, workers will receive US$12.50 per hour immediately and no dental coverage. A 50% pay cut is a bitter pill to swallow, and the UAW is certainly justified in being nervous.
The plain truth of the matter, however, is that there are no heroes and no villains in this story. From one perspective, Delphi is caught in an extremely difficult position. In 1999, GM effectively shoved off some of its own healthcare and pension problems by spinning off its parts division. Delphi is still GM’s main supplier, with more than US$15 billion in contracts every year. The move was certainly advantageous at the time: GM got relief from some of its crushing cost issues, and Delphi had the opportunity to become a profitable parts supplier and sell to other companies than GM. While Delphi has made strides in selling to other companies than GM, it is still highly dependent on the continued success of GM – and GM is dependent on the existence of Delphi. The UAW must tread lightly, lest it kill their golden goose. There is no possible way that Delphi, GM, or almost any other business can survive in their current states with healthcare and insurance costs so rapidly increasing. The union is certainly entitled to get as much as it can for its workers, but if it ends up forcing Delphi or GM into bankruptcy then nobody wins.
On the other side of the coin, however, the workers are real people – people with mortgages, car payments, and families to support, or retirees facing a rapidly emptying Social Security piggybank. Current retirees were promised lifelong security in exchange for a long commitment to the company, and they were counting on that to see them through the rest of their lives. Though it’s a matter of moral debate, the companies can’t simply abandon these people. What do the employers do, however, when the money just isn’t there?
The current solution, and seemingly the only equitable one, is exactly what has been going on, albeit slowly, for years. Cutting salaries is not as good an option as offsetting healthcare costs and lessening pension payouts. The younger workers are not expecting what their parents and grandparents did – lifetime security in exchange for a lifetime of work. Today’s workers are much more able to handle their own retirement through 401(k) plans and other IRAs. Older workers, who were not expecting the current crisis and did not begin saving in this manner until recently, can be given early retirement and bought out for lump sums. While this pales in comparison to a true pension, and the retirement income that they were promised, it’s a great deal better than nothing – and nothing is what they are likely to end up with if Delphi goes under.
The workers know this, and that further compounds the problem. When New York City MTA workers went on strike last year, they knew that their action would be a blow to the MTA and to the city’s coffers – but they also knew that the subways and buses weren’t going anywhere and that they’d have jobs to return to. With Delphi in its current precarious state, there’s a very real possibility that a strike may seriously damage the company – enough that going back to work is no longer a given.
The wheels of justice turn slowly, however – arguments won’t be heard until June, and the rulings will take longer. There’s still time for negotiations and compromise, and the sense of urgency given by an impending ruling may help the process along. Nobody’s going to end up happy, but here’s hoping it doesn’t end in disaster.
More information on the court case on The Wall Street Journal (subscription required).