Both Delphi and GM suffer from the same self-inflicted troubles--they both have too many workers who are getting paid too much money to produce too many products that too few consumers are buying. Add in horribly restrictive and inflexible work rules, plus huge costs for retiree pension and medical benefits, and you can see why both companies are hemorrhaging money.
GM’s answer to the problem is to offer early retirement and buyouts ranging from $35,000 to $140,000 to as many as 131,000 workers, including all 105,000 represented by the United Auto Workers. It’s a drastic plan, to be sure, but perhaps less so when you consider that GM lost more than $10 billion last year.
Delphi’s strategy is no less radical. Late last month, the company filed plans in bankruptcy court to get rid of 25 of its 33 U.S. plants and cut some 30,000 hourly and salaried workers. In addition, Delphi asked the court for permission to dump all its labor contracts and retiree benefits for its 34,000 union workers and 12,000 retirees.
If Delphi gets its way in bankruptcy court, it would impose work rules and drastically cut wages, and the old labor contracts would disappear. That would probably force the UAW and other unions to strike Delphi, and a strike would hammer GM by leaving the world’s largest automaker short of parts. Analysts say a strike could cost GM $7 billion to $8 billion in the first 60 days alone.
Union workers are understandably bitter about all this, and the bitterness and anger are probably best summed up by this quote from a veteran Delphi worker in the Detroit Free Press: "As long as corporate America is unloyal to this country--they’re not loyal to anybody but to their stockholders--we’re going to have these problems, and it’s not just going to be the auto industry."
I feel for the union workers and retirees who negotiated their contracts in good faith and made life decisions based on them. No one likes to have the rug pulled out from under them, and that’s surely how union workers at Delphi are feeling right now.
But maybe we need something really drastic to happen to focus everyone’s attention on this problem. Delphi said in its latest bankruptcy court filing that it is paying its 31,000 hourly workers $78.63 per hour, a figure that includes health care, vacation and retirement costs.
I don’t know of any American company that operates in today’s global economy that can stay in business paying blue-collar workers nearly $80 an hour. U.S. automakers (and their suppliers, like Delphi) are finally confronting the sober reality that other carmakers, such as Toyota and Honda, can make good cars that Americans want to buy and can do it with workers making a lot less.
If Delphi gets its way in bankruptcy court and can throw out its labor contracts, union workers will almost surely strike. If they do, there is a good chance that a strike will end up not only killing Delphi, but maybe even killing GM too.
No one wants to see that happen, but maybe it would take something like Delphi liquidating and GM going belly-up to finally convince the unions that the costly and inflexible labor contracts they cling to make it virtually impossible for a company to operate profitably in today’s hyper-competitive global economy.
Something radical needs to happen if the U.S. auto industry is to survive, and maybe it will take the demise of a Delphi or a GM to finally wake up both the unions and management, once and for all.
Workforce Management, April 10, 2006, p. 58 -- Subscribe Now!