UAW Can't Meet All of Delphi's Demands

From the Detroit News

DETROIT — In his first face-to-face meeting with United Auto Workers President Ron Gettelfinger, Delphi Corp. Chairman Robert S. Miller got right down to business.

A restructuring expert, Miller produced a list of his opening demands. They included wage cuts of at least $5 an hour, benefit reductions and work rule changes that together total roughly $2.5 billion in givebacks, according to people familiar with the situation. Otherwise, Delphi likely would seek federal bankruptcy protection.

Miller’s message, delivered Aug. 3 at the UAW’s Solidarity House in Detroit, didn’t play well. Last week, Richard Shoemaker, a UAW vice president, told local union leaders assembled in Chicago that there was no way to give Delphi all it wants.

“The question becomes how much can we do and if that will be enough to avoid bankruptcy,” said Shoemaker, according to a UAW memo dated Aug. 25 and obtained by The Detroit News.

The stage is now set for a difficult, contentious and time-constrained round of negotiations that could fundamentally reshape Delphi and the UAW’s reputation for preserving Big Auto wages and benefits.

Not only is the future of Delphi, the world’s largest auto parts supplier, at stake, but so are thousands of high-paying jobs in Michigan and the industrial Midwest.

The two sides appear to be far apart with a relatively short time to close the gap. Delphi signaled that it could file Chapter 11 before new bankruptcy laws go into effect on Oct. 17.

Delphi, which was spun off from General Motors Corp. in 1999, posted a $338 million loss in the second quarter and has struggled in the face of recent production cutbacks at GM, rising raw material costs and the increasing costs of health care and retiree benefits.

Both Delphi and GM are in separate discussions with the UAW in hopes of reaching some cost-cutting solutions ahead of the 2007 expiration of their current national contract. Representatives from GM, Delphi and the UAW have yet to meet together to discuss their issues.

The UAW leadership says it will not be strong-armed into concessions. The union says it will consider only solutions that do not require it to reopen its national contract and that blue-collar workers should not be the only ones asked to make sacrifices.

“If anybody does anything, everybody has to do something,” Gettelfinger told reporters at a union-sponsored reception Friday.

The UAW, which has seen its membership decline as Detroit automakers have downsized, is at a critical juncture.

While committed to protecting jobs, the 70-year-old union also recognizes the depth of financial troubles besieging the Detroit-based auto industry. Its leaders say they understand that refusing to cooperate could speed the demise of both the auto companies and the union.

But it also knows that whatever it gives to one company, it will be pressured to give to others.

At the UAW’s annual meetings in Chicago last week, Shoemaker told union leaders from GM that the UAW will not consider concessions until it completes an independent review of the automaker’s finances. The union has said the review would wrap up by summer’s end, which has fed speculation that a deal may be near.

But Shoemaker was at a loss on how to respond to Delphi’s threat of a bankruptcy filing by Oct. 17 if it doesn’t get union concessions.

“He stated that he had no idea what would happen, but they would continue to meet with Delphi and as soon as there was a solid proposal we would all be called together to discuss it,” according to the union memo sent to local union leaders, which summarized Shoemaker’s comments at the meeting.

In a sign the union may be preparing for the worst, the UAW last week had a bankruptcy lawyer explain to union leaders what a Chapter 11 filing by the supplier could mean. But it also sought to reassure union leaders that worker pension and benefits are guaranteed by GM as a condition Delphi’s spinoff from the automaker, the memo said.

It’s unclear how much support GM could lend to Delphi if the supplier filed for bankruptcy.

GM lost $2.5 billion on its North American auto business this year and may not be in a position to bail out its troubled former parts division. At the same time, it needs a healthy Delphi to keep supplying parts for many GM vehicles — a responsibility that has Wall Street convinced some kind of deal is imminent.

“In our view, discussions between GM, the UAW and Delphi will lead to GM being convinced by the union to offer one-time financial assistance to Delphi in return for lower ongoing employee costs and compliance with capacity reductions,” Prudential Equity Group analyst Michael Bruynesteyn said in a Friday report.

On Friday, the Wall Street Journal reported that the UAW wants GM to take back 7,000 Delphi workers. But GM already has as many as 5,000 laid-off workers in its “jobs bank.”

Workers caught in the crossfire of the talks are less optimistic.

Mike Wittek, a 52-year-old toolmaker at Delphi’s plant in Coopersville, MI, worries a deal now will only open the door to more demands for concessions.

“You’ll never be able to run fast enough, you’ll never be able to give enough back,” said the 20-year employee.

Added 56-year old machine operator Barbara Julien: “I want to retire and I want to keep my retirement. It’s not something they’ve given me, it’s something I’ve earned.”

Dave Jager, who retired in October after 26 years of service, fears a bankruptcy filing would dig a deep hole in his fixed-income budget. “If they file Chapter 11, we lose our health insurance,” said Jager, 63. “My wife and I use $600 a month in maintenance drugs. We’d have to go out and buy health insurance for about $300 a month.”

Delphi spokeswoman Claudia Baucus would not comment specifically on talks with the UAW, but said she was hopeful that the two sides could come to an agreement that would lower the supplier’s labor costs and improve its competitiveness. “We’ve identified the what,” she said. “Now, we just have to figure out the how.”

Delphi CEO Miller has made clear he wants the issues resolved this year, and not in 2007.

“We cannot continue to operate with the numbers of workers and cost levels we have at this time,” Miller said on Aug. 15. He said wages and benefits in the United States cost Delphi $130,000 annually per worker, a figure the UAW disputes.

So far this year, Delphi has cut 3,600 of the 8,500 hourly positions it hopes to eliminate by year’s end. But only 1,400 of the job reductions have been in the United States because of weak response to early retirement offers.

In 2004 Delphi and the UAW negotiated a lower tier wage structure for new hourly hires, but the company has had little opportunity to take advantage of the lower pay scale due to the slow rate of retirement of higher paid workers and declining production levels.

Until 2007, when it will no longer use GM’s national contract with the UAW as a pattern for its pact, Delphi is saddled with wage and benefit levels that are far richer than those of rival suppliers.

Gettelfinger said the UAW has had few substantive talks with Delphi about a cost-cutting agreement. “I’m not sure there’s been that much discussion going on at this point,” he said Friday.

He questioned the wisdom of Delphi’s Miller tying concessions to the threat of bankruptcy, suggesting that the CEO, who arrived in July, may be trying to accomplish too much, too fast.

“We will analyze it,” Gettelfinger said. “But I am not sure if he has overplayed his hand there.”

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