Daniel Howes: A tough blow, a long road ahead
On the second Saturday in October 2005, when Delphi Corp. filed for
bankruptcy, Detroit's auto industry, its people and communities shuddered.
Now we see a big reason why.
The painful, concessionary and, depending on your point of view,
inevitable labor agreement inked by the United Auto Workers, Delphi and
former parent General Motors Corp. is the most prominent piece of the
Delphi parable and what it could portend for the larger pieces of
Detroit's automotive empire -- the three automakers themselves.
Like the third ghost in Dickens' "A Christmas Carol," the Delphi story
over the past 21 months offers glimpses of what could be. But it's not
necessarily what must be, unless GM, Ford Motor and Chrysler stumble
even more than they already have in their North American turnarounds.
"When Delphi went Chapter 11," says David Cole, chairman of the Ann
Arbor-based Center for Automotive Research, "that made what was
What's real are the plant closings -- the majority of 29 Delphi plants
in the United States are expected to be shuttered or sold. Work will be
moved from U.S. plants to cheaper plants overseas. "Buydowns" will be
offered to reduce wages for the "traditional" UAW members who don't
retire, take an early out or flow back to GM. Benefits will be cut and
pensions replaced by 401(k)s. And in the end, Delphi will be controlled
by private equity groups.
Details remain sketchy as the UAW sets out to get the deal ratified, but
what's real are the bitter emotions of those who believe the whole,
hugely expensive affair was unnecessary, contrived to crack the UAW's
grip on its master contract, enrich some executives and reposition
Delphi as an American supplier in name only.
No more 'sugar daddies'
What's real is that Delphi is likely to emerge from bankruptcy a far
more cost-competitive company, that it continued to book new business
through bankruptcy, and that the fear its run through federal court
instilled in the lethargic mass of Detroit's auto industry may, in fact,
help save it.
What's real is that the probable denouement of the UAW-Delphi-GM
wrangling and the comparatively soft landings from waves of GM-financed
buyouts are likely to leave a false sense of security in employees and
communities of GM, Ford and Chrysler. Why? Because Delphi had a former
parent with legal obligations to stand by certain classes of employees.
The others do not.
Should GM, Ford or Chrysler, soon to be owned by a private equity shop,
"go chapter," there would be no backstop -- only creditors, lawyers, a
bankruptcy judge and a lot fewer guarantees.
As much as free marketeers may hail the "creative destruction" of
Detroit's continuing recapitalization, it's hard to appreciate the
creative part when all you can envision is the destruction of
communities, the erosion of property values and, for some, a step down
in living standards.
You can argue it's not fair, deserved, right, American, defensible, or
you can say it was inevitable, necessary and long overdue, as I tend to
hear from the management heads around town. But it is what it is.
No denying human cost
By any measure, that the UAW, Delphi and GM reached the point of a
tentative agreement on perhaps the most distasteful smackdown the union
has encountered in its 70-plus year history is as much a testament to
the diplomacy and realpolitik of UAW President Ron Gettelfinger and his
bargainers as it is a recognition of the brutal economic reality they faced.
Refuse to settle and Delphi asks the court to void the contract. Void
the contract and the UAW calls a strike. Strike Delphi and you damage
the sugar daddy named GM. Without GM, who would honor the financial
commitments to the remaining union members or those who've since retired
in good faith?
Distasteful? Unbelievably so, which is why Gettelfinger seldom misses an
opportunity to lambaste Delphi Chairman Steve Miller or to describe
Delphi execs as "hogs slopping at the trough" or to label the whole
bankruptcy "mechanical" and something that should never have occurred.
But it has, this Detroit auto equivalent of the fall of the Berlin Wall,
and this is what it has wrought.
Whether a union type or a management type, there is no denying the human
impact of this bankruptcy, this agreement, and what it portends for an
industry whose foundation partly rests on the labor-management relationship.
Lives will be changed. Incomes for some will decline while those of
others are likely to be stabilized. The vast majority of Delphi's annual
revenue will come from overseas plants manned by foreign nationals, many
of whom might mistake Troy for the ancient Greek city, instead of home
to Delphi's headquarters.
Major unionized suppliers have watched -- and waited -- intently for
clues to the kind of contract the three parties would devise, knowing it
would serve as a template for them and others in the industry.
Wall Street -- often assuming the caricatured worst of the union and the
guys running the companies -- built models and tried to make dough
betting on whether this day would come or culminate in an Armageddon
that would consume Delphi, GM and who knows what else.
Many were mistaken, mostly because models cannot account for the effect
of human decisions and leadership, however reluctant, in difficult and
This is one of those times. And as bad as it looks to some right now, it
could have been a lot worse -- for just about everyone.