It’s not just
the cost of US labor and health care that handicap US businesses in the global
marketplace, despite what we read everywhere.
Although not
all corporations are like this, too many find new ways to avoid expensive
upgrades, all at the expense of their employees and the general body of
taxpayers. And, as Louis Uchitelle’s
book addressed, decades of layoffs have created a demoralized labor market that
blames itself for not being successful, in a rigged economy.
It’s no wonder
that many states are beginning to look anew at ‘kicking the corporate tax cut’
and rebalance their regional economies toward more local development that has
roots and a sense of place. - kwc
Go Bankrupt, Then Go
Overseas
For
Delphi, Chapter 11 is a globalization gambit. If it works, rivals may copy it
By David Welch, Business Week, April 13, 2006
Delphi's (DPHIQ
) battle with the United Auto Workers has all the earmarks of a
conventional labor showdown. Chief Executive Robert S. "Steve" Miller
Jr. has demanded up to 40% pay cuts, which he says are necessary to lift the
world's largest auto parts maker out of bankruptcy and make it globally
competitive. The UAW has agreed in principle that concessions are inevitable
but is adamantly resisting the scope of changes Miller wants.
But what's different in this battle is that Miller wants to use the
bankruptcy courts to drastically slash Delphi's U.S. presence, thus freeing it
up to focus on its already vast overseas production. Miller filed
for Chapter 11 protection only for his U.S. operations, which employ 32,000 UAW
and other union workers. He was careful to exclude Delphi's 115,000-worker
foreign factories, many of which operate in low-wage countries such as Mexico
and China.
If Miller gets his way, court filings show, Delphi will end up with a U.S.
workforce of perhaps 7,000, leaving the bulk of its production abroad.
"The company will only keep U.S. operations that have technological
value," says Brian Johnson, an auto analyst at Sanford C. Bernstein.
Miller declined comment.
NEW ROAD. Miller's is an unorthodox approach that paves a new road for
U.S. employers striving to compete in a globalizing economy. After all,
U.S. bankruptcy laws were written before globalization and intended to give
companies a chance to reorganize and start over -- not flee overseas, says Sean
McAlinden, chief economist with the Center for Automotive Research.
He says other auto parts companies, a handful of which already are in
bankruptcy, are likely to follow suit if Miller's strategy succeeds. That means
the $170 billion annual auto parts business could shift overseas even faster,
jeopardizing more of the industry's 695,000 jobs.
Critics are trying to throw up all the roadblocks they can. On Apr. 6, two UAW
allies, Senator Evan Bayh (D-Ind.) and Representative
John Conyers Jr. (D-Mich.), introduced legislation in
Congress to tighten up the bankruptcy laws in response to Delphi's moves. The bills
would require the courts to factor in a bankrupt company's overseas operations
when determining whether it can abrogate union contracts and retiree
health-care plans in the U.S.
"Some international corporations that
are struggling domestically use their losses at home to justify breaking
contracts with American workers while their overall company is still thriving,"
the two lawmakers proclaimed in their joint announcement of the legislation.
BIG DITCH. Miller doesn't talk much publicly about his goals for
fear of further inflaming an already outraged UAW, but the gist of Delphi's
plan is apparent in its bankruptcy filings. Right now the company produces
about two-thirds of its $28 billion in annual revenue in the U.S. This includes
everything from high-tech engine controls and satellite radios to low-tech
commodities such as air filters and brake parts.
Its reorganization plan would ditch everything in the U.S.
except safety technology, radios, information and entertainment systems,
electronics, wiring, and engine controls. That would leave Delphi with U.S.
revenues as low as $5 billion.
To pull off a downsizing of that scale, Delphi would close or
sell 21 of 29 plants it has identified as noncore businesses, according to the
filings. An additional 12 plants are not named in the reorganization plan, but
a company spokesman says some of those will go, too.
PRESSURE ON GM. It's not just $27-an-hour union wage scales at issue. Even
if the UAW agrees to slash pay to $22 per hour this year and to $16.50 per hour
next year, as Miller has demanded, many of Delphi's plants are
inefficient and would take huge investments to bring up to world-class
standards. Bottom line: Delphi's plan would slice away 27,000 U.S.
union jobs by 2010.
Many of these cuts will come with aid from former parent General Motors (GM). It's on the
hook because it buys about $14 billion in parts a year from the company it spun
off in 1999. If the UAW were to strike over Miller's demands, GM would be shut
down in a couple of weeks, GM Chief Executive G. Richard Wagoner Jr. tells BusinessWeek.
That's why Wagoner agreed in March to take back 5,000 UAW workers from
Delphi and offer early retirement buyouts to 13,000 more. It's also why
he is still at the bargaining table, trying to grease a deal that will help
Delphi cut costs while keeping its union workers off the picket line.
NEXT IN LINE? Indeed, Wagoner may end by subsidizing the wages of
whatever jobs Delphi keeps in the U.S. UAW leaders say GM may pay as much as
$10 an hour on top of the $12 Miller is offering his UAW members. Wagoner
insists he won't take over any Delphi plants. But McAlinden thinks GM could
wind up paying some of Delphi's wages, at least temporarily.
That may not be quite as crazy as it sounds. Consider that GM is currently
subsidizing Delphi by paying $2 billion above market for the parts it buys from
its former division, says Wagoner. If GM wage subsidies persuade the UAW to go
along with Miller's plan to shutter more of its U.S. plants that supply GM,
that would free up the auto maker to find cheaper suppliers. "We can work
it out," Wagoner says. "The benefit to GM is that we can get parts at
market-based prices."
For Miller, the preferred outcome is clear: exit high-cost U.S. operations in
which Delphi is not competitive. McAlinden figures other suppliers -- even
healthy ones -- will take similar steps. "You don't think that companies
like Lear (LEA ) and Johnson
Controls (JCI ) won't want
to find a way to go overseas?" asks McAlinden. "You bet they
will."
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