"What's the difference between Delphi and the Titanic?" UAW Local 699
Chairman Tom Basner said in a recent letter to workers in Saginaw. "The
answer, of course, is that the Titanic had a band."
Steve Perez / The Detroit News
Delphi plans to shed 21 of 29 U.S. factories -- including the one in
Flint -- cut 8,500 salaried jobs and freeze pensions later this year.
Delphi plan: Grim model for the future
Cutting benefits, union ties and moving to China, Mexico, bankrupt supplier
could pave way for others.
Brett Clanton / The Detroit News
Bill Pugliano / Getty Images
"Delphi can survive. But it will be a much different Delphi," says economist
Patrick Anderson.
Who do you blame for the impasse on wage agreements?
Click here to vote
<http://info.detnews.com/autostalk/lettersindex.cfm?topic=Voided_contracts&f
orum=autostalk>
With Delphi Corp. bleeding cash, jettisoning 21 U.S. plants and thousands of
workers and headed for a showdown with its unions, the parts maker would
seem to be destined for history's scrap heap.
But the bankrupt poster child for the failing industrial Midwest may emerge
from this period of creative destruction as a healthy and viable company --
only one whose future lies mostly in low-cost meccas like Mexico and China.
Instead of a cautionary tale, Delphi may become the blueprint for companies
that want to safeguard their future by fleeing the American heartland,
brutally cutting union ties and escaping enormous retiree benefit costs.
And that may be the scariest part of the Delphi debacle for Detroit. The
"race to the bottom" feared by United Auto Workers President Ron
Gettelfinger is off and running.
The Delphi of tomorrow will bear only the slightest resemblance to the
rust-belt behemoth created in a 1999 spin-off from General Motors Corp. At
that time, Delphi had 60,000 highly paid U.S. hourly workers. The staggering
downsizing plan announced Friday will leave Delphi with about one-fourth
that total.
But Delphi's 60,000-strong work force in Mexico is likely to keep growing.
And Delphi will build a smaller range of parts.
"Delphi can survive," said Patrick Anderson, an East Lansing economist who
last year authored a report on the impact of the supplier's bankruptcy. "But
it will be a much different Delphi than we're used to."
Though not in bankruptcy, Visteon Corp., the auto parts maker cast off by
Ford Motor Co. in 2000, is moving nearly as quickly to untangle itself from
high union wages and benefits.
It has transferred unprofitable U.S. plants back to the automaker and is
radically downsizing in North America in an urgent bid to become profitable.
Others also restructuring
Lear Corp., Tower Automotive and other major auto suppliers also are
restructuring themselves with an eye toward low-cost countries.
While the details of Delphi's turnaround are messy, they are not unexpected.
Since an Oct. 8 bankruptcy filing, Delphi Chairman and CEO Robert S. "Steve"
Miller has said the domestic auto industry can only survive if it breaks
from a business model that he argues is no longer sustainable.
Cradle-to-the-grave benefits, $100,000-a-year factory jobs, guaranteed pay
for laid-off workers -- they must go in order for the domestic auto industry
to survive, he said.
"I think we all understand very well that life is not going to continue the
way it has been," Miller told The Detroit News in an interview after
Delphi's Chapter 11 filing. "Things have to change."
Delphi made the point Friday, when it filed a sweeping reorganization plan
and took steps to terminate its union contracts and retiree benefits.
In the reorganization plan, Delphi said it will shed 21 of 29 U.S. factories
-- including five in Michigan -- cut 8,500 salaried jobs, freeze pensions
later this year and dump unprofitable parts contracts with GM.
Yet the motion to begin the process of voiding union contracts could create
bigger problems for Delphi in coming weeks.
The move increases the chances of a work stoppage at Delphi, which could
ruin the supplier and hobble GM, its largest customer. If Delphi is
successful in convincing U.S. Bankruptcy Judge Robert Drain to reject the
contracts and it unilaterally slashes worker pay, "it appears that it will
be impossible to avoid a long strike," the UAW said in a statement Friday.
But Delphi's Miller said the company is "singularly focused" on reaching an
agreement with its unions that avoids a battle in the streets. GM will use
its influence to avert a strike.
Globalization, GM hurt firm
The problems that brought Delphi to this point stem in part from its 1999
separation from GM, but also from the gnawing forces of globalization.
While the spin-off made the supplier the beneficiary of a wealth of GM
technology and business, it also saddled it with GM wages that are more than
double those of most U.S. suppliers.
"The basic idea was for Delphi to outrun the legacy problem of its inherited
labor costs by diversifying its customer base and global footprint," Miller
told the Washington Post on Oct. 28. "That strategy sounded good, but
ultimately failed."
Delphi remains too reliant on GM, whose declining U.S. market share has
wreaked havoc on many domestic parts suppliers. The automaker accounts for
49 percent of Delphi's revenue, is down from 76 percent in 1999 and 87
percent in 1992.
GM, grappling with its own financial travails, has tried to offset losses by
demanding reduced prices from its largest supplier. GM, since the spin-off,
has asked Delphi for an average 2.1 percent price break each year on parts
-- more than double what other automakers require, the supplier said Friday
in court filings. GM, in turn, says it pays a $2 billion-a-year premium on
Delphi parts because of the supplier's bloated cost structure.
At the same time, Delphi said its U.S. union labor costs rose 81 percent in
the last six years, from $43.47 per hour in 1999 to $78.63 last year. Though
its unions dispute the numbers, Delphi said the figures represent the full
cost of wages, benefits and other items for 33,000 U.S. hourly employees.
"That kind of thing just isn't affordable in a global reality anymore," said
Neil DeKoker, head of the Original Equipment Suppliers Association, a
Troy-based supplier industry trade group.
Non-U.S. facilities grow
Delphi has increasingly moved operations to low-cost countries such as
Mexico and China.
Today, the supplier employs about 185,000 people worldwide, but fewer than
50,000 people in the United States. It has 163 manufacturing sites, but
fewer than three dozen in this country.
In its reorganization, Delphi has identified eight U.S. plants that are
critical to its U.S. operations: They are in Grand Rapids; Brookhaven and
Clinton, Miss.; Kokomo, Ind.; Lockport and Rochester, N.Y.; and Warren and
Vandalia, Ohio. Delphi said those plants will focus on safety features,
electronics, diesel and gas powertrains and climate-control products.
Delphi would no longer build spark plugs, brakes, steering components and a
list of other auto parts in this country.
While the company operates 33 manufacturing facilities in the United States,
it included only its 29 plants with unionized work forces in the Friday
filing. The remaining four are staffed primarily by outside contractors.
So, what will become of the 21 factories that sit on the block?
"The implication is that a fair amount of it is going to go global," said
Kim Korth, president of IRN Inc., a Grand Rapids-based industry research
firm.
"But I think it also opens some significant opportunities for domestic
suppliers."
Analysts say buyers could include existing suppliers growing their business
with domestic automakers, strategic financial investors, such as billionaire
Wilbur Ross or new competitors, perhaps from China, looking to make inroads
in the U.S. auto market.
Delphi intends to unload the targeted plants by Jan. 1, 2008.
Its unions blast Delphi for using the bankruptcy process to wriggle out of
labor contracts and close plants.
Like Miller, they see Delphi as a symbol of how global economic forces are
forcing change on their industry. But they see the paradigm shift less as an
opportunity and more as an unmitigated disaster for workers and communities.
"What's the difference between Delphi and the Titanic?" UAW Local 699
Chairman Tom Basner said in a recent letter to workers in Saginaw. "The
answer, of course, is that the Titanic had a band."
You can reach Brett Clanton at (313) 222-2612 or [EMAIL PROTECTED]
Related links
Letter sent by several U.S. Representatives to Delphi CEO Steve Miller
Thursday urging him to bargain in good faith.
<http://www.uaw.org/delphi/033006gmiller.pdf>
UAW reaction to Delphi's filing.
<http://www.uaw.org/delphi/delphiupdate.cfm?duId=47>
Delphi actions could bankrupt GM
<http://money.cnn.com/2006/03/31/news/companies/delphi/> -- CNN
<http://cnn.com/>
GM Pushed Closer to the Edge
<http://www.fool.com/News/mft/2006/mft06033019.htm> -- Motley Fool
<http://www.fool.com/>
Delphi Asks to Void Labor Contracts, Alter GM Deals
<http://quote.bloomberg.com/apps/news?pid=10000006&sid=a60xjfffpU.c&refer=ho
me> From Bloomberg.com
Delphi primed for GM court battle
<http://news.bbc.co.uk/1/hi/business/4865788.stm> From BBC News
Delphi seeks to void labor contracts, cut jobs
<http://today.reuters.com/business/newsarticle.aspx?type=ousiv&storyID=2006-
03-31T162137Z_01_WAD000118_RTRIDST_0_BUSINESSPRO-AUTOS-DELPHI-LABOR-DC.XML>
>From Reuters
UAW Local 1866 report to membership on Delphi proposals
<http://www.uawlocal1866.org/pubs/communications/shop_letter/upload/Shop%20L
etter%203-28-06.pdf>
Letter from Henry Richard, chairman of the IUE-CWA Automotive Conference
Board, to Kevin Butler, Delphi director of human resources
<http://info.detnews.com/2006/iuecwaletter.gif>
Delphi to dismantle contracts, UAW says
<http://detnews.com/apps/pbcs.dll/article?AID=/20060330/AUTO01/603300402/114
8>
Delphi offers $50K bonus for wage cuts
<http://detnews.com/apps/pbcs.dll/article?AID=/20060328/AUTO01/603280388&Sea
rchID=73239854198128>
Feds put heat on ex-Delphi executives
<http://detnews.com/apps/pbcs.dll/article?AID=/20060327/AUTO01/603270317&Sea
rchID=73239854198128>
Workers mull whether to gamble on buyout
<http://detnews.com/apps/pbcs.dll/article?AID=/20060325/AUTO01/603250349&Sea
rchID=73239854270401>
Michigan, GM likely to be stronger after buyouts
<http://detnews.com/apps/pbcs.dll/article?AID=/20060324/AUTO01/603240416&Sea
rchID=73239854270401>
Praise, caution greet deal
<http://detnews.com/apps/pbcs.dll/article?AID=/20060323/AUTO01/603230398&Sea
rchID=73239854270401>
About the offers on the table
<http://detnews.com/apps/pbcs.dll/article?AID=/20060323/AUTO01/603230385&Sea
rchID=73239854270401>
Brian O'Connor: Should you take the deal?
<http://detnews.com/apps/pbcs.dll/article?AID=/20060323/OPINION03/603230394&;
SearchID=73239854270401>
GM, Delphi,UAW reveal buyout agreement
<http://detnews.com/apps/pbcs.dll/article?AID=/20060322/AUTO01/603220440&Sea
rchID=73239854270401>
Delphi Medical sparks sales
<http://detnews.com/apps/pbcs.dll/article?AID=/20060315/AUTO01/603150381&Sea
rchID=73239854270401>
<http://cmsimg.detnews.com/apps/pbcsi.dll/bilde?Site=C3&Date=20060402&Catego
ry=AUTO01&ArtNo=604020302&Ref=H9&Profile=1148Q=100&MaxW=250>
More Autos-Insider Headlines
* Can Dieter Zetsche shift mega-merger into high gear?
* SAE showcases vehicle safety
* Sport Trac bulks up to fight Japanese rival
* Delphi lowers the boom, filing downsizing plan
* China expresses regret at complaints over car parts imports
* GM retirees must pay more
* Workers: Delphi's plan would ruin lives, cities
* UAW: Delphi to shed 14 of its U.S. plants
* A supplier's odyssey: To return $4M to GM
* Ford heir: Failure is not option
* U.S. fights China auto parts fees
* Front crash test procedure is revised
* A timeline of events surrounding Delphi
* Does GM have cash to fund comeback?
* SUVs, trucks face tougher mileage rules
* Lear moves to shore up finances
* UAW says Delphi will ask judge to cancel contracts
* Chinese automaker SAIC scraps plan for joint venture factory
* Investor: Global auto industry is healthy
C Copyright 2006 The Detroit News. All rights reserved.
<http://gpaper123.112.2O7.net/b/ss/gpaper123/1/G.4--NS/0>
