As Delphi delays, losses grow, pensions shrink, move to US$10/hr hourly wages

[Marc]

From The Detroit Free Press

Delphi Corp. Chief Executive Steve Miller gave the nation's largest auto parts maker six more weeks to negotiate a critical deal to cut jobs, wages and benefits for hourly workers without a bankruptcy court showdown and strike.

Auto-industry experts doubt that can be done by March 30, the new deadline Miller set Friday. They say a deal that involves General Motors Corp., Delphi's largest customer, and the UAW, its largest union, almost certainly must be reached by June.

Delphi is posting losses of $200 million to $1 billion a month, and UAW Vice President Richard Shoemaker -- who has been leading a coalition of the parts maker's six unions -- is set to retire in June at the auto workers' national convention in Las Vegas.

"You certainly wouldn't want to put the burden of this on someone who is new to the scene," David Cole, director of the Center for Automotive Research in Ann Arbor, said Friday, shortly after discussing the situation with Miller.

The uncertainty is creating a lot of anxiety among Delphi's 34,000 blue-collar workers in the United States, people like Tammyann Hartung, a single mother of three who assembles oil coolers at a Lockport, N.Y., plant.

"It's starting to get pretty old living on eggshells, not knowing what's going to happen," said Hartung, who makes $26 an hour and is worried she'll have to sell her house.

Delphi was expected either to have reached an agreement with GM and the UAW, or file a bankruptcy court motion to eliminate all its union contracts and clear the way for it to slash 24,000 jobs and reduce the pay of 10,000 remaining workers by two-thirds.

Delphi chose neither. For the third time, the Troy-based company delayed filing the motion. Now it says it can reach an agreement by March 30. And like it said the three previous times, if no deal is reached, it will file a motion to eliminate union contracts.

Filing the motion would create an onslaught of nationwide plant disruptions that undoubtedly would affect GM, which employs nearly 80,000 Michigan workers and 142,000 people in the United States, and spends $85 billion annually on parts and services from more than 3,000 suppliers.

Because Delphi is GM's largest supplier, and GM supports more than 3,000 other suppliers, a strike at Delphi would indirectly affect the entire automotive industry.

Bankruptcy experts following Delphi's case said they were not surprised by the postponement.

"I bet a lot they would do that," said Jim McTevia, a managing member of McTevia & Associates LLC in Bingham Farms, a turnaround consultancy firm. "As in every basic problem-solving process, the most important ingredient is time. It is with time you are able to reach into the future and get answers to problems."

McTevia has more than 40 years of bankruptcy filings experience. He said even if Delphi fails to reach an agreement by March 30, the court likely would grant another extension.

"A bankruptcy does not solve any business problem. It is an expensive process of buying time," McTevia said. "It is my opinion that the court will grant Delphi as much time as it needs to resolve problems."

Those problems are large. Delphi once was GM's parts-making subsidiary and spun off as an independent company in 1999. But it has never been consistently profitable. It lost $4.8 billion in 2004. After losing another $741 million in the first six months of 2005, it filed for Chapter 11 bankruptcy protection Oct. 8.

The parts maker says it is burdened with restrictive labor contracts that require it to pay far more than its competitors. The company says its 34,000 hourly workers in the United States make $27 an hour -- $76 an hour when benefits are added. It wants to cut 24,000 hourly jobs from the U.S. workforce and reduce the wages to an average $12.50 an hour, or $35 an hour when benefits are added.

Delphi threatened to cancel labor contracts if blue-collar workers don't accept significant reductions in jobs, pay and benefits. The six unions banded together in a coalition led by the UAW and threatened to strike if contracts are nullified -- a walkout that could quickly shut down most, if not all, GM assembly plants in the United States, Mexico and Canada.

But fearing the threat of a UAW strike at Delphi, GM Chairman and Chief Executive Officer Rick Wagoner met with Miller on Nov. 24 to discuss a plan for temporarily forgoing price reductions GM demanded on parts it buys from Delphi.

GM Chief Financial Officer Fritz Henderson said Jan. 26 that the automaker will spend between $3.6 billion and $12 billion in benefit guarantees for some former workers who were moved to Delphi.

Senior credit analyst Brad Rubin of BNP Paribas in New York said a bailout for Delphi is affordable for GM. Rubin estimates that out of 24,000 UAW Delphi workers, two-thirds are close to retirement and can be bought out.

"Now, to pay them off, we estimated at worse to be $1 billion to $1.2 billion," Rubin said.

For the remaining workers, Rubin estimates it would cost GM some $200 million a year to keep Delphi hourly wages up near $22 an hour -- $5 an hour less than the current average, but perhaps enough to avert a strike.

GM, Delphi and the UAW have been negotiating in earnest since Jan. 20, under the belief that avoiding a strike is best for everyone.

About 45,000 of GM's 105,000 hourly workers are eligible to retire over the next few years.

Incentives that would encourage even a fraction of those workers to retire would free up jobs for Delphi workers worried about a bankruptcy court possibly voiding the UAW contract and putting their livelihoods in jeopardy.

Shoemaker has identified at least five GM vehicle assembly plants where job openings are more likely to become available for Delphi workers if the automaker and the union agree on a buyout package, said one UAW local president who attended recent briefings by Shoemaker. The president of the union local declined to be identified for fear of retribution from the union.

Jobs at those five plants -- located in Arlington, Texas; Fairfax, Kan.; Ft. Wayne, Ind.; Wilmington, Del., and Shreveport, La. -- are unlikely to be filled by laid-off GM workers seeking employment at other facilities, the union local president said.

The longer Delphi stays in bankruptcy, however, the more it will cost GM, said Erich Merkle, auto analyst with IRN Inc. in Grand Rapids.

"Someone has to make sure Delphi's parts are not interrupted," Merkle said, adding that the likelihood of parts interruptions increases the longer a company is in bankruptcy.

Said Brett Hoselton, auto analyst with Keybanc Capital Markets: "The longer this thing goes on, you're impacting your employees and customers."

[Marc]

US$10 an hour is pretty hard to live on. How many people in the US can 'survive' on US$10 / hr?

Oct. 6: Unions say Delphi demanded as much as a 63% wage cut, to $10 an hour, and for workers to pay 27% of their health care costs, instead of the 7% currently. Pensions could be halved.

Oct. 8: Delphi files for Chapter 11 bankruptcy protection, the largest U.S. manufacturer to do so.

Oct. 11: Delphi wins approval in U.S. Bankruptcy Court for a $950-million loan to keep U.S. plants operating while in bankruptcy.

Oct. 17: A U.S. Trustee selects Delphi's creditors committee, the group responsible for consulting, investigating and negotiating a reorganizing plan with Delphi.

Nov. 16: The UAW reveals that Delphi wants 24,000 jobs cut on top of reducing wages and benefits for remaining workers.

Nov. 24: GM agrees to pay higher prices for parts it buys from Delphi.

Dec. 9: Delphi says it will pay the 12 members on its board of directors $140,000 to $200,000 a year in cash instead of stock.

I wonder why the change to cash...

Dec. 30: Delphi reveals it lost $127 million and spent $23 million on lawyers and other bankruptcy-related fees from Oct. 8, when it filed for bankruptcy, through Nov. 30.

Jan. 25: The UAW gets a nonvoting position on Delphi's creditors committee.

Jan. 31: Delphi announces it lost $1.1 billion in December.

Feb. 1: GM CEO Rick Wagoner says he is unlikely to reach an agreement with Delphi and the UAW by Feb. 17.

Feb. 17: Delphi delays filing a motion to void union contracts and cut wages and benefits. It sets March 30 deadline for reaching a deal with GM and the UAW.

[Wes Bucey]

I was struck by the fact they expect to buy out 16,000 workers (2/3 of 24,000) for $75,000 each or about the equivalent of one year's cost under the proposed pay plan (cash plus benefits at $35/hour) or about 16 months at the current cash only average of $27/hour (since the difference between $76 cash + benefits and $27 is mostly accounting, and not cash put aside in a reserve account.)

It will be a hard fact of life for auto retirees who spent all income, counting on "guaranteed" retirement benefits to carry them in their "golden years." I know several retirees from the airline industry who have already lost homes when retirement pay was slashed by two thirds.

If I were the union negotiator, I'd ask for the cash of the "retirement benefits" portion of the $76/hour for the past 30 years my workers near retirement age were supposedly piling up [at interest] to be paid out after they retired (some of the current $76 is for health care/vacations/layoff pay, also only accounting entries, since vacation pay is already calculated as part of annual as is layoff pay.) Don't you wonder what the "accounting entry" was for retirement benefits?

[Bob_M]

I'm hardly "educated" on this entire auto industry wage/benifits issue but...

Originally Posted by Marc

US$10 an hour is pretty hard to live on. How many people in the US can 'survive' on US$10 / hr?

My mother barely makes over $11/hour - She's worked for Cook County, IL for 12 years and is on yet another "raise freeze" even though she's techically part of the few county employees that have a union. (Guess what all the "big" bosses and judges get BIG raises every year). My Mom's income has NOT gone up in a few years, but her union wages did.

Originally Posted by Marc

The uncertainty is creating a lot of anxiety among Delphi's 34,000 blue-collar workers in the United States, people like Tammyann Hartung, a single mother of three who assembles oil coolers at a Lockport, N.Y., plant.

"It's starting to get pretty old living on eggshells, not knowing what's going to happen," said Hartung, who makes $26 an hour and is worried she'll have to sell her house.

As far as how much the auto workers make - I don't exactly feel sorry for the "younger" employees - I'm a college educated "Quality Manager" that has been at this small company for 10 years and I'm still under paid and making less than $20/hour.

At $26/hour + benifits + overtime - I'd have a heck of alot more money in the bank and a much bigger/better house/car. (I drive a 1999 Cavalier). Maybe I should have been an autoworker. BTW what's a pension? I don't have one of those either and my 401k is a joke...

-------------

I'm not trying to be ignorant or start a fight. But not everyone feels sorry for the autoworkers...

*Ducks the eggs, tomatoes, etc*

[Marc]

I don't see it so much as 'feeling sorry' for auto workers. Rather, I see this as being about a trend and the implications of it continuing.

Even if a family in the US has 2 working parents, if each are only making US$10 an hour they're going to have a hard time sending kids to college, for example (and seeing as how interest rates on government college loans have just gone up and other student loan programs are being cut), while trying to pay for their home, pay utility bills, buy clothes and food, etc. And none of this addresses medical, dental and eye care.

No - This thread is not a pity the auto worker thread, it is to encourage thoughts about the direction of the middle class in the US as the US moves towards being a WalMart nation.

The Federal Reserve Board reported today that the average income of American families, after adjusting for inflation, declined 2.3% in 2004 compared with 2001.

Originally Posted by Bob_M

I'm a college educated "Quality Manager" that has been at this small company for 10 years and I'm still under paid and making less than $20/hour.

If your boss comes up to you and tells you he has to cut costs and that he can no longer afford to pay you more than US$10 an hour, how well will you fare? Or will you start looking for a job elsewhere that pays more than US$10 / hr?

[Bob_M]

Originally Posted by Marc

Even if a family in the US has 2 working parents, if each are only making US$10 an hour they're going to have a hard time sending kids to college, for example (and seeing as how interest rates on government college loans have just gone up and other student loan programs are being cut), while trying to pay for their home, pay utility bills, buy clothes and food, etc. And none of this addresses medical, dental and eye care.

That I can DEFINATELY agree with.

My mom barely makes ends meet, and I give her $$ and buy her stuff whenever I can, and sometimes it's still barely enough.

[ralphsulser]

"Lawyers received $23 million"....now see they are the only ones who make big bucks without any consequences. They go home and carry on as usual, all in a days work. Don't have to sacrifice anything.

[Wes Bucey]

As smart as I thought I was in planning and preparing for my own retirement, I still encounter some very nasty surprises in watching expenses rise much faster than my income so each year I fall a little further behind.

A fellow I've talked about in the past, John Challenger, of Challenger, Gray & Christmas, (http://www.challengergray.com ) outplacement specialists, wrote this week that changing careers will put you further and further behind economically. One estimate by economists is that changing careers (not changing industries) takes the average candidate 10 years to catch up in wages and benefits to the career he left. This does not include a Quality Manager moving from a QM job in manufacturing to a QM job in a bank or hospital, but it does include a QM moving from QM to sales or engineering, even in the same industry.

The reasoning seems to be the combination of experience and on-the-job tips and tricks are transferrable from industry to industry (accountants, especially) and can justify the same pay scale at the new position as at the previous one, but starting over in a new career or profession puts you back with beginners and (sometimes) even further behind because of a built-in bias which may view such a candidate as "damaged goods."

The major point I see about our conversations/discussions about union wages and the dirty tricks being played on folks who thought they had an iron-clad contract is twofold:

1. these are public contracts, played out in the press for all to see (versus private employees who get screwed over in relative secrecy)
2. if folks with contracts and high-powered lawyers are getting the dirty end of the stick, how much tougher is it for the ones who have no high-powered lawyers or contracts?

The original terms of the union contracts are immaterial - both management and labor went into these contracts with their eyes wide open. Management may not have PLANNED to screw over the union employees, but since the negotiations were mostly adversarial, the managers had no love for the union employees and considered them "enemies" and "foes" - not partners, despite any fine-sounding tripe in their press releases about the value and importance of the workers. With that mindset, it was easy to put them high on the list of places to cut costs within the company.

With that in mind, think about whether your employer REALLY gives a rap about what happens to you if he lays you off. I'm aware of many employers who fight tooth and nail to prevent laid-off employees from collecting unemployment compensation (because the number of ex-employees collecting benefits directly affects the sum the employer has to pay into the progrram in taxes.) Certainly, "temporary" and "contract" employees are in an even tougher position in most jurisdictions when it comes to collecting unemployment benefits.