Posted on 10/15/2005 7:19:45 PM PDT by voletti
GM bets the ailing parts maker will win big labor savings -- and it can follow suit
Delphi Corp. had barely filed for bankruptcy on Oct. 8 when all eyes turned to General Motors Corp. (GM ) It's not hard to see why. In the weeks leading up to Delphi's announcement, many analysts had figured GM would never allow its former parts unit to file for Chapter 11. Doing so meant the already troubled auto maker could inherit up to $11 billion of Delphi's pension and health-care obligations. Even worse, a bankruptcy judge could force GM to pay more for some of the $14 billion in Delphi parts that it buys each year.
But GM is clearly gambling that a Delphi bankruptcy is well worth the risk. As Delphi Chairman and Chief Executive Robert S. "Steve" Miller Jr. closes plants that sell parts to GM, the auto maker can buy those components more cheaply elsewhere. More important, Miller will likely wrest major concessions from the United Auto Workers -- ranging from cuts in wages and retirement benefits to sharply higher employee contributions to health care and an end to the industry's costly practice of keeping laid off workers on the payroll for years. Whatever deal he gets could become a road map for talks between GM and the UAW, which must ink a new contract by October, 2007.
(Excerpt) Read more at businessweek.com ...
GM should declare itself to be bankrupt as well and start paying the people on the assembly lines $10.00/hour with minimum benefits.
they don't...
Honda America is doing well, but they have no unions.
Ditto Southwest Airlines and Wal-Mart. No unions.
Is there a connection?
You only can kill the golden goose once! The UAW should realize this.
Ditto Southwest Airlines and Wal-Mart. No unions.
Actually, Southwest Airlines is unionized. In fact it is on e of the most unionized airlines in the US.
"I'm curious. Why must a company pay the health insurance of 12,000 people who no longer work for the company?"
Only because they contracted to do so.
That's why these situational ethics are deplorable. Shame on Delphi and every other major corporation that engages in this type of conduct. The contract that provided for Delphi to keep up the premiums on retirees' healthcare insurance was obviously an advantageous business decision for Delphi when it agreed to the deal,
Now, when it finds that a previous agreement under which it benefitted at a time past is not so beneficial any longer, it simply dumps those who accepted the lower wage, stayed on the job and benefitted the company.
That is morally dispicable and contrary to every tenet of right and wrong we preach to the electorate. What the hell is wrong with our moral compass?
These employees are on company pensions until they and their spouse die. People are living longer, and costs for health care are skyrocketing. Companies in this position have filed lawsuits to cancel these kinds of pension benefits, but the judges have (up to now) held that the workers stayed with the company in part because of the promised benefits in the future. So it was a contract between the employee and the firm.
Now if you asked why management did not look up the actuarial data and the growth in health insurance costs and not agree to these deals, you would have a good question. It is likely that the company figured that health care would be nationalized by now or a new owner would take over and renounce the past deals, all of which can happen. The truth is that most companies began to alter the benefit picture around ten years ago. My company caps the pension benefits and the employee picks up the rest.
Delphi didn't even exist at that time. Those promises were made when they were still a part of GM. The promises only made sense in a world where the domestic auto makers had an oligopoly and could make higher than competitive profits. That started to disappear after the 1973 oil embargoes when much more fuel efficient foreign cars started flooding the US market. The quotas imposed on foreign cars in the 1980s due to legislation signed by Ronald Reagan briefly reinstated a weakened domestic oligopoly, but encouraged Japanese manufacturers to go after higher end portions of the market than they had targeted previously. GM can no longer make higher than normal profits on its cars to pay for the grandiose retirement plans the unions forced on them.
I agree - they (as in UAW and GM Management circa 1978, or, you-pick-the-year) agreed to contractual provisions which bind them. Not the taxpayer. When the company becomes non-viable and uses bankruptcy to shed the pension plan - no part of the "they" includes the concept of the taxpayers of the united states, a small subset of which has been part to the contract, picking up the tab.
The market changed.
So, the justification, short of misuse of the bankruptcy law is???
So, the justification, short of misuse of the bankruptcy law is???
You are right on this one.
That is morally dispicable and contrary to every tenet of right and wrong we preach to the electorate. What the hell is wrong with our moral compass?
Well, we need a little economics lesson here. The real problem is that if Delphi and GM continue to fund their retirement programs at the levels dictated by their contractual obligations, they are not going to stay in business very much longer.
Right now GM prices are way too high, and the quality is just not there.
Back when American-made cars had a perceived quality advantage, they could command a higher price. Those days are long gone.
My family has six vehicles. 3 American-made, 2 Japanese and one German. When replacement time rolls around, the American-made ones are going to get retired and replaced with Japanese. This is not disloyalty, just plain & simple economic survival for me. Based on actual repair records, days in the shop per year of ownership, and our satisfaction, an American car would have to sell for 75% or less of the price of a competitive Japanese one to be considered for purchase. This same equation is playing out all across America.
Now, this is just plain not going to happen if GM continues to pay pensions it has contracted for.
Here is the bottom line:
GM can continue to pay its pensions and health care for retired workers and go bankrupt in the next 10 years, or it can win concessions from the unions and pay a reduced rate. Those are the only practical choices available.
Do you want half a loaf or nothing?
GM did not enter into those contracts with the intent of defaulting, but times have changed.
The inane response that ''the market has changed'' is no answer at all, it merely recognizes that the market has risks as well as rewards and that one engages in business enterprises, including labor contracts, in the risks/rewards environment.
On the other hand, the labor contracting agents knew of the existence of bankruptcy laws and accepted the risk that the employer's business was sufficiently sound that acceptance of the risk for their principals, the retirees, was a reasonable one. Apparently, they didn't take into consideration that the employer would misuse the law; once again confirming the truism that the term '' commercial ethics'' is an oximoron.
The profits just are not there to make good on the retirement expectations. The employees took a risk. They knew or should have known that the promise is only good as long as the company can stay in business and make enough to cover the promises.
The union should have insisted in fully funding of the promises ahead of time to avoid this problem. Why didn't the union look out for workers interests? This is a black eye to the union who should have pushed for defined contribution plans. They didn't because that reduces the power of the union as accounts are fully owned by individual workers. Neither the company nor the union would be able to touch them.
It is not like the owners (shareholders) are taking money from the employees here. The owners of Delphi will lose their entire investment. The money is not there and both the owners and the employees are losing here.
I read recently that Delphi had one of the highest average wage and benefit packages around. Worked out to be about $65 an hour.
What were they getting paid before the "lower wage"?
Really?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.