Delphi-UAW deal: Sign of the future
The historic restructuring of the American auto industry cleared another
major hurdle Friday with the announcement of a deal covering wage cuts
and factory closures between bankrupt Delphi Corp. and the United Auto
The tentative agreement includes a payout of $105,000 over three years
that will be offered to about 4,000 of Delphi's 17,000 UAW workers. In
return, the workers' pay will be cut from about $27 an hour to a maximum
of $18.50 an hour by Oct. 1.
Delphi said the pact negotiated with the UAW and General Motors Corp.,
its former parent, represents a "significant milestone" in its
torturous, 20-month odyssey since filing for Chapter 11 on Oct. 8, 2005.
"If ratified, we believe this agreement will be a significant milestone
in our transformation and a major step towards emergence (from
bankruptcy)," said John Sheehan, Delphi's chief restructuring officer.
The pact also could serve as a template for pay plans at other suppliers.
Union members are expected to vote on the agreement next week. If
passed, the deal would allow Delphi to substantially reduce its overhead
in a bid to compete with lower-cost international suppliers.
More importantly, the deal removes the threat of a potential strike that
would cripple GM -- Delphi's largest customer -- and disrupt contract
talks this summer between the UAW and Detroit automakers.
"Delphi could have been a dark cloud hanging over the talks all summer,"
said Harley Shaiken, a labor professor at the University of
California-Berkeley. "It would have been particularly difficult for GM."
In a statement, GM said it is "encouraged by the continued progress" in
its talks with Delphi and the UAW, and is committed to reaching "a final
resolution that will allow Delphi to emerge as a more competitive
The Delphi bankruptcy has proved to be a microcosm of the daunting
challenges facing the domestic auto industry.
While Delphi was flourishing in low-wage markets such as China, its U.S.
operations were losing money on many of the components built in its U.S.
The bankruptcy dramatized the burdens facing U.S. automakers: high
health care and pension costs for hourly workers and retirees.
Since Delphi's bankruptcy filing, each of Detroit's automakers has taken
dramatic steps to ensure its survival. Ford Motor Co. put virtually all
of its U.S. assets up as collateral in a multibillion-dollar credit deal
to fund its restructuring. Ford and GM cut landmark health care deals
with the UAW to cut costs. And the Chrysler Group was sold to a
private-equity firm earlier this year.
Details of the Delphi wage agreement were withheld Friday, but people
close to the talks said 4,000 Delphi workers will be offered lump-sum
payments of $35,000 annually for three years in exchange for accepting
pay cuts that would bring them from $27 an hour to a maximum of $18.50.
The rest of Delphi's hourly work force are either temporary workers or
were hired after 2004 at lower pay rates.
"If it means I have a job for the next five years, that's great," said
Scott Reed, 33, of Owosso, who works at Delphi's Flint East plant and
was hired at the lower wage. "As long as I have a job with benefits, I
don't care about anything else -- except that we stay part of the UAW, too."
UAW President Ron Gettelfinger issued a statement confirming a deal was
reached. Local union presidents will present the details to their
While the union could not avoid concessions, it succeeded in keeping
some plants open that were targeted for closure, and the wage terms are
significantly better than Delphi's original offer soon after it filed
"It's a good deal and a generous one, especially when you look at the
context of the agreement with Delphi coming out of bankruptcy," said one
local president, who spoke on condition of anonymity.
UAW under pressure
The pressure is on UAW leadership to get members to ratify the deal,
which came after the UAW rejected at least two offers from Delphi that
would have meant deep pay cuts.
GM is expected to subsidize wages as part of an earlier agreement to
provide up to $400 million in annual labor-related costs. In addition,
the automaker has said that it expects to cover $7 billion in retirement
costs for former GM workers at Delphi.
"When GM firmed up its financial exposure that indicated that they were
getting close to a deal," said David Cole, head of the Center for
Automotive Research in Ann Arbor.
The UAW also appeared to have modified Delphi's earlier plan to close or
sell 21 of its 29 U.S. factories as it downsized.
People close to the talks said that four of the 21 plants were saved
from shutdown or sale, and another five will be operated by a third
party until they are sold.
The factories that will continue operating until a sale include Saginaw
Steering and Flint East in Michigan, according to a source familiar with
The tentative agreement had been expected for weeks as bargainers from
GM, Delphi and the union met feverishly to cut a deal.
Tension was growing
Since the bankruptcy filing, Delphi has been a source of increasing
tension for GM, the UAW and much of the U.S. auto industry.
Early in the bankruptcy, Delphi Chairman Steve Miller provoked union
anger by attacking UAW maintenance crews as "lawn mowers" getting $65 an
hour in wages and benefits, and threatening to cut hourly pay rates to
as low as $9.
In return, Gettelfinger blasted Miller and other Delphi execs as "hogs
feeding at the trough" for seeking millions of dollars in bonuses to
bring Delphi out of bankruptcy.
The heated rhetoric dragged on for months as both sides battled in U.S.
Bankruptcy Court in New York. On several occasions, Miller vowed to ask
Judge Robert Drain to void Delphi's union contracts, only to back down
in the face of a potentially devastating strike.
Without a wage agreement, there also was little chance of a viable
investment group forming to buy Delphi when it emerged from Chapter 11.
Delphi is in talks with competing private-equity groups -- separately
led by Appaloosa Management LP and Highland Capital Management LP.
With the UAW set to open national contract talks next month with GM,
Ford and Chrysler, the union wanted a deal with Delphi as much as
anybody, Cole said.
"It was a huge distraction for them as they were preparing for possibly
the most important national negotiations in the past 50 years."