Delphi, Union Reach Tentative Wage Pact

From AFX News Limited

DETROIT — Struggling auto parts maker Delphi Corp. reached a tentative wage-cutting agreement Friday with its largest union in what may set the pattern for future pay in the U.S. automotive parts industry.

The deal, which still must be voted on by Delphi members of the United Auto Workers, was signed just before a 1 p.m. meeting between the UAW leadership and presidents of the union’s locals.

Details of the agreement were not released, but Delphi said in a statement it’s a "significant milestone" in the company’s quest to emerge from Chapter 11 bankruptcy protection. The union also said details are being withheld until a ratification vote by members.

The pact also is a requirement for Delphi to get up to $3.4 billion from private equity investors that it needs to escape from Chapter 11. The supplier lost $533 million in the first quarter and $5.5 billion in 2006.

Union officials, who spoke on condition of anonymity earlier this week because the deal had not yet been completed, said the pact would cut wages for longtime UAW workers from around $27 per hour to between $14 and $18.50.

It’s also expected to include lump-sum payments to longtime Delphi workers who would then either retire, return to former parent company General Motors Corp. or work for less money.

Industry analysts say it could become a template for other parts suppliers.

The pact, if approved, would end the threat of a strike that could have shut down production at General Motors Corp., Delphi’s largest customer. It also would bring to a close two years of often-contentious negotiations in which the UAW threatened to strike and accused Delphi of leading a race to dismantle the middle class.

Troy, MI-based Delphi, on the other hand, said it needed lower wages to compete in a global economy. The former parts arm of General Motors Corp., which was spun off as a separate company in 1999, filed for bankruptcy protection in October 2005 and asked for court permission to void its labor contracts.

The deal also must be approved by a U.S. Bankruptcy Court judge in New York, Delphi’s statement said.

GM is involved in the agreement because it is on the hook for an estimated $7 billion in liabilities for Delphi pension and retiree health care expenses.

The deal will have a much larger impact than just on Delphi and General Motors, David Cole, chairman of the Center for Automotive Research in Ann Arbor, said before the deal was announced.

"It’s a pattern supplier agreement," said Cole, who added that sales of many factories by suppliers and even Ford Motor Co. have been delayed while Delphi negotiations dragged on. "Nobody’s going to pick up any of these assets unless they have an agreement that they think is going to be competitive over the longer term," Cole said.

While it likely was difficult for UAW leaders to agree to reducing wages, it appears the union still was able to preserve far more than the $9 per hour that Delphi proposed early in the bankruptcy proceedings, said Harley Shaiken, a professor at the University of California-Berkeley specializing in labor issues.

"The agreement reflects the dismal context of the auto parts industry in a global world," Shaiken said. "The $18 wage is approximately double what Delphi offered immediately after the bankruptcy. So they managed to salvage a much better agreement."

UAW officials told local leaders on Tuesday that they would like to wrap up the Delphi matter before July 23, the formal start of national contract talks between GM, Ford, Chrysler Group and the UAW. That means voting likely would be done before July 1 when GM’s plants go on a two-week shutdown.

The UAW leadership still must sell the deal to its 17,000 members who work at Delphi. About 4,000 of them have been with Delphi long enough to be getting the higher wages. The remainder of Delphi’s 20,000 hourly workers are represented by other unions, which likely will get the same deal as the UAW.

Shaiken said other parts suppliers likely will try to match or beat the Delphi-UAW wages, but the UAW would be reluctant to grant lower pay to healthy companies such as Canadian parts giant Magna International Inc.

Delphi has said it wants to close or sell most of its 29 U.S. plants as it restructures and shrinks itself into a smaller company. The parts supplier plans to focus on operating eight U.S. plants that make electronics, safety systems, heating and air conditioning systems and some mechanical parts. The plants slated for sale or closure make steering systems, brakes, dashboards and other parts that Delphi no longer considers part of its core business.

In December, Delphi lined up private equity firms including Cerberus Capital Management LP, Appaloosa Management LP and Harbinger Capital Partners Master Fund I to give it up to a $3.4 billion infusion needed to get out of bankruptcy.

Delphi has said that Cerberus may back out of the deal, and Highland Capital Management LP, is in discussions with Delphi to be a lead investor.

GM shares fell 50 cents, or 1.4 percent, to $35.46 on Friday.