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Company files for bankruptcy while demanding huge wage cut
Will Delphi bust the UAW?

By Lee Sustar | October 14, 2005 | Page 15

THE BANKRUPTCY of auto parts manufacturer Delphi marks the biggest attack on the United Auto Workers (UAW) in decades--and sets the stage for an even more serious onslaught on the union from Big Three automakers.

Delphi, formerly the parts division of General Motors, filed for bankruptcy October 8 after UAW officials refused to accept company demands to cut wages from between $26 to $30 per hour to $10 or $12. Now the company plans to ask a federal bankruptcy court judge to void the UAW contract covering about 24,000 unionized workers altogether unless the union agrees to accept such cuts.

"A lot of people I know will be forced to go bankrupt after October 17," when bankruptcy laws will become more restrictive, said Gregg Shotwell, a worker at the Delphi plant in Cooperstown, Mich., and a member of UAW Local 2151. "A lot of these people are GM gypsies--people who moved because their old plant closed. They never had the opportunity to live in the same house for 30 years, so they have big mortgages and high taxes. It is depressing to me that I won't be able to retire, but a lot of people will lose everything" if management's plan goes through."

The business press has treated Delphi's fall as a typical story of a U.S. manufacturer hammered by cheap imports, complicated by a management accounting scandal that hid the bad news until recent months. In reality, the unraveling of Delphi is the latest phase of GM's long-term efforts to downsize employment and lock in low-cost suppliers.

When GM spun off Delphi in 1999, the company promised to pay Delphi workers' pensions, and the companies negotiated with the UAW together for the 2003 contract--in which pay for new hires at Delphi was to be set at $12 per hour. Delphi workers were made to vote on the same contract as GM assembly plant workers, ensuring that the two-tier pay deal would go through.

But once Delphi began losing money and its management was implicated in a scandal, the plan to gradually wind down Delphi jobs and wages was suddenly switched to the fast track. Following the example of the airlines, the company turned to the bankruptcy courts to break union power.

And according to Shotwell, the UAW has yet to produce a legally binding agreement that will force GM to honor its commitment to pay Delphi workers' pensions. "I have a copy of a memorandum on the Delphi pension benefits that is unsigned and undated," Shotwell said. "But is it legally valid?"

If Delphi succeeds in dumping pensions into the federal Pension Benefit Guarantee Corp., monthly benefits could be slashed from $2,600 or $2,800 per month to $900.

UAW officials have kept Delphi workers in the dark on the pension issue and negotiations in general. While the union may try to sell workers a slightly better deal before Delphi seeks cuts in bankruptcy court, Shotwell said he thinks that it's unlikely that workers would vote to accept such massive cuts.

For GM, Delphi's collapse represents an opportunity to slash costs for its major supplier at the stroke of a bankruptcy court judge's pen and keep control over its former subsidiary. That's because GM, as the major Delphi creditor, has a lien on Delphi's plant and equipment. "When I saw GM people in our plant taking pictures of our equipment, I knew they were going to file for bankruptcy," Shotwell said.

For its part, GM will benefit from Delphi's plight by cut costs without having to file for bankruptcy itself, which would wipe out the stock holdings of major institutional investors. "If you are going to own a piece of Delphi, you'd rather that was a right-sized, cleaned-up one, right?" bankruptcy lawyer Robert Keach told the Wall Street Journal. "GM would come out the other end of [Delphi's] bankruptcy process owning a substantial chunk of debt and likely the common stock would go to creditors like GM."

For the UAW, the threat couldn't be clearer. GM is after the union to swallow massive cuts in health care coverage and pensions for assembly plant workers--and may press to reopen the contract before it expires in 2007.

The UAW's failure at Delphi wasn't inevitable: A strike at two parts plants in 1998 shut down GM's entire North American production. But the union let the company off the hook rather than risk losing an arbitrator's ruling that the walkout was an illegal national strike and paying millions of dollars in penalties. "The union demilitarized in 1998," Shotwell said. "I think they were thinking about their own survival as a bureaucracy."

GM brought work back into the struck plants--but then sold off Delphi the following year. With Delphi parts still crucial to GM's operations, the UAW still has the leverage to pressure both companies into backing off. But that will depend on whether rank-and-file workers refuse to accept that their wages will be cut in half--and take a stand to fight it.

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