Daniel Howes: A tough blow, a long road ahead

Daniel Howes: A tough blow, a long road ahead http://www.detnews.com/apps/pbcs.dll/article?AID=/20070623/AUTO02/706230388/1148
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 hypothetical real."
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 historic times.
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.
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