Skip to comments.The Debacle of Delphi
Posted on 10/21/2005 6:07:35 PM PDT by fuyb
The Debacle of Delphi The industrial welfare state forces the auto-parts giant into bankruptcy. by Richard Burr 10/21/2005 12:00:00 AM WHEN THE LARGEST INDUSTRIAL BANKRUPTCY in American history happened more than a week ago, Washington barely noticed. But the fight between the automotive parts giant Delphi Corporation and its unions could take a big bite out of taxpayers' wallets.
The rhubarb started when Delphi, the former in-house parts supplier for General Motors, warned that it was near financial collapse. It couldn't afford to keep paying its workers $25 to $31 an hour, about $52,000 to $64,500 a year--plus benefits. Delphi Chairman Robert "Steve" Miller wanted the union to agree to a 60 percent wage cut to $10 to $12 an hour and other concessions. He also sought a bailout from GM, which provides most of Delphi's business. Both GM and the UAW balked, so Delphi filed for bankruptcy.
No one likes to see workers lose their jobs or see their pay and benefits cut. But the industrial welfare state that the union created with the automakers' blessings no longer makes economic sense, if it ever did.
DOMESTIC AUTOMAKERS have had to pay off the UAW for productivity improvements--more automation, flexible job rules and job cuts--which were needed to compete with foreign competitors. This invariably required putting more people on the private dole. For example:
Get paid for no work. More than 12,000 auto workers, including 4,000 from Delphi, are put in a "jobs bank," meaning that they show up at a plant and spend the day doing no work. Others do community service. Including healthcare and pension benefits, the cost runs from $65 to $71 an hour per worker--$135,000 to almost $150,000 a year. This program comes after a worker is laid off and has exhausted their company-financed unemployment benefits, which are equal to 95 percent of their former pay. The total cost to the industry is $4.5 billion a year and growing.
Retire early with full benefits. A "30 years and out" rule lets workers who are hired as early as 18 retire before they turn 50. If their health is good, they collect a pension and fully paid healthcare for another 35 years or more. By contrast, Miller says, at Delphi salaried staffers have to go on Medicare after they turn 65.
Work nine and a half months, take off two and a half months. Workers annually receive six weeks of vacation and 16 holidays. Every two years, they add a holiday for state or federal Election Days--a de facto political contribution to the Democratic party.
This kind of welfare was tolerable when the Big Three automakers dominated the market. But GM, which once claimed 50 percent of the American market, is clinging to about 26 percent today. Even during what is supposed to be an economic recovery, automakers and their suppliers are struggling; GM lost $1.6 billion in the third quarter alone. Ford lost $284 million overall in the third quarter, with its North American auto operations losing $1.3 billion. And both Ford and GM say they plan to cut more factories.
GENERAL MOTORS has a more perilous situation than Social Security. At least that federal program can claim three workers for every retiree. GM has more than three times as many retirees and dependents as it has workers. Delphi's Miller and the Bank of America warn that GM eventually could go bankrupt.
It doesn't help matters that salaried workers pay more for healthcare benefits--about 27 percent of costs--than union workers do.
"Paying $65 an hour for someone mowing the lawn at one of our plants is just not going to cut it anywhere in industrial America for very long," Miller said at a press conference last week.
The feeling is shared. When U.S. Rep. David Camp visited farmers in his Michigan district last week, says spokesman Sage Eastman, one of them said about the auto pay package: "(Expletive), what am I doing farming?"
The UAW grudgingly recognizes the problem. Its most recent contract included modest healthcare co-payments for workers. On Monday it opened an agreement with General Motors to give $1 billion a year worth of healthcare relief (GM spends almost $6 billion annually on healthcare).
But Delphi will remain a sore point because factories can be closed and labor contracts torn up in bankruptcy. To complicate matters, the company gave its top managers an 18-month severance package a day before the filing as a way to keep them around through the restructuring.
UAW President Ron Gettelfinger called the severance package "a disgusting spectacle." An "angry" Michigan Gov. Jennifer Granholm lashed out at "an apparent indifference in Washington to the human pain that so-called free trade has brought to average, patriotic, hard-working citizens who believe in keeping promises."
And UAW leaders say they aren't ruling out a strike if the bankruptcy court nullifies its Delphi contract. That would shut down an important part of the national economy, since automakers rely on daily parts shipments to make vehicles. Delphi's Miller says a strike would escalate the number of plant closings and job cuts. But a walkout would cost GM business and pressure it to cave--a course the company has traditionally chosen.
A strike would also create a public spectacle which could pressure the Bush administration and Congress to step in with a bailout. Don't be surprised if Michigan's governor and Democratic congressional delegation propose a federal worker-focused package of subsidy and trade protectionism. They put together a similar wish list two years ago when "offshoring" or the outsourcing of jobs to foreign countries became popular.
And they may have a powerful ally in Sen. Hillary Clinton, who has a Delphi plant in New York. Clinton called Miller last week to chat about the factory, as well as pension and healthcare issues.
ANY BAILOUT SUBSIDIES of workers or companies should be a tough sell. Delphi isn't a saint. The federal government has found accounting misconduct in the company and a criminal investigation is ongoing.
Besides, the automakers and their workers made their welfare pact and now need to wean themselves from it. Congress is besieged with spending requests for Hurricanes Katrina and Rita. The Pension Benefit Guaranty Corporation is $23 billion in the hole and growing. Domestic automakers would love to have taxpayers subsidize their healthcare costs, but Americans may begrudge financing gold-plated benefits that many don't have themselves.
The UAW and mismanagement have already bankrupted one company. The industrial welfare state shouldn't drag Uncle Sam down with it.
Glad Richard Burr is my senator now and not John Edwards
Organized Labor = Organized Extortion.
Interesting, thanks for posting.
Those salaries/days off are unbelievable!
Interesting, thanks for posting.
Those salaries/days off are unbelievable!
Im in the lions den and work at a community college. Some of the state polices are the same as the UAW's such as 30 and out, but not to the extent in the article. One that I promote for others to have is our SURS http://www.surs.com/. It is our pension plan that does not cost any more than SS would and we are exempt from SS. After fees I maid 16.74% return on my investments with compound interest last year (compound interest being the key word).
Articles in the WSJ this week pegged the benefits cost at $40/hour. Bad as Delphi's situation may seem, they don't have NEARLY the worker to retiree ratio that GM has.
Something has got to give.
That's a good return!
I noticed the following remark on their investment page:
"Publicly traded real estate investment trusts (REITs) have also provided strong returns, increasing 17.7%, as measured by the Wilshire Real Estate Securities Index."
I know so little about the stock market....but one thing I do know is that the REITs are all at some of their lowest stock prices right now. I just sold my REIT shares (for a loss) ... just couldn't watch them sink lower and lower every day. Decided I can make up the loss somewhere else, hopefully.
The dividends were great on the REITs -- but my timing was off, and I bought just as they began their huge decline. Obviously, I didn't do my DD. Now many of the REITs have lowered their dividend, and the stock share price has dropped too.
But the comment made on REITs at your link really caught my eye! I'm glad to be out of REITs right now.
Let 'er rip. I'm a big fan of the UAW. As of market close today, and thanks to the greedy union thugs, I clinched a huge profit in two weeks time off a bear credit spread on Delphi, not to mention a highly rewarding bull put spread as all the auto parts money fled into Johnson Controls. With the cooperation of the UAW I intend to do the same with GM, and the Japanese auto makers, several times, over the next couple years.
Yep, that union is paying for my kids' education and the slobs don't even know it.
Get paid for no work. More than 12,000 auto workers, including 4,000 from Delphi, are put in a "jobs bank," meaning that they show up at a plant and spend the day doing no work
An "angry" Michigan Gov. Jennifer Granholm lashed out at "an apparent indifference in Washington to the human pain that so-called free trade has brought to average, patriotic, hard-working citizens who believe in keeping promises."
To bad the UAW choked that chicken, to get their last egg.
The era of bailouts of the auto industry is over. A majority of Consumers don't like Detroit autos. Stick of fork in it.
Organized Labor = Organized Extortion.<<<<<<<<<<<<
I have never belonged to a union and I wondered aloud thirty years ago how people expected to keep on making cars and selling them to people who earned a third as much as the people making the cars. Having said that let me add that I simply don't believe that the economy of this country is in great shape as I am constantly being told. I have been told on this forum many times that real wages in this country are higher than ever before. Anyone who tells me that the average woker in this country has more buying power than six months ago must be using a strange measuring instrument.
I think an inflation factor induced by union extortion which pushes up the price of all goods has been kept under control artifically for a couple of decades, because the two person wage-earning houshold has absorbed much of the effect on a family. But now the economy has adjusted to this artifical factor and inflation will now rise. How my father bought a house and raised a family with four kids, I have no idea!
How my father bought a house and raised a family with four kids, I have no idea!>>>>>>>
My father raised four sons and my mother stayed home to teach us what we didn't learn in school! They did it by living in a tiny house without all the amenities we take for granted today but the little shack and forty acres more or less was totally debt free! My father worked as a carpenter and any home repair was done without outside help. We grew a lot of our own food but produced very little cash income from the land. We cut wood for heat and lived without air conditining. My father worked forty hours a week on his job and he earned about a dollar and a half an hour in the fifties, a lot of people now spend more than that on gas for their cars. A large candy bar cost a nickel then, a 12 ounce Pepsi in a glass bottle could be bought anywhere for 7 cents and for less by the six pack. I remember my father having a "hissy fit" because the electric bill hit 8 dollars for one month. Sometimes in the summer I would work all day in the field for my first cousin and he would pay me $3.50 for a day, it was amazing what I could buy for that.
I consider the current "inflation adjusted" figures to be nothing more than a cruel joke. We need an inflation adjuster based on only the true necessities of life, if accurately figured I believe it would show a 20 dollar bill to be worth about what one dollar was worth fifty years ago.
A current website purporting to show inflation adjusted
value shows a dollar in 1955 being worth 6.88 today, there is no way that I will believe that. In the first place, there is no way that a person earning 6.88 times what my father earned back then could ever own the same 40 acres that I grew up on and it is still just as far out in the country as ever with no town of any size within 40 miles. In fact most people living there would have to drive farther to find a job now than then.
That's the big cost right there. I should add that most UAW members are retirees.
The auto industry in this country needs to survive, for national security reasons if nothing else, but that doesn't mean wages and benefits that clearly cannot be supported economically need to survive with it.
The Delphi filing is a huge wake up call to the UAW. Do you think they would've given GM the health care deal without it?
Yes, because the numbers showed GM was going bankrupt in 2007 without it. It may anyway.