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Delphi Chief Sees GM Bankruptcy Without Wage U-Turn (Update4)

Delphi Chief Sees GM Bankruptcy Without Wage U-Turn (Update4)

Oct. 11 (Bloomberg) -- Delphi Corp. Chief Executive Officer Steve Miller said General Motors Corp., his biggest customer, will have to file for bankruptcy if it can't wrest wage and benefit concessions from the United Auto Workers union during their next contract talks.

Miller took Delphi, the largest U.S. auto-parts supplier, into bankruptcy after he couldn't get financial aid from GM and was unable to persuade the UAW to cut pay for long-time workers by as much as 64 percent to as little as $10 an hour.

``If GM comes out of 2007 with a labor agreement that looks like what today's agreement is, they are inevitably headed toward Chapter 11,'' Miller said in an interview yesterday.

Three days after filing the biggest manufacturing bankruptcy in U.S. history, Miller, 63, outlined what he described as a pivotal point for U.S. industrial society. Delphi's dilemma is ``simply a flashpoint and a test case'' for this crisis, said Miller, who has steered auto companies, steelmakers and airlines through bankruptcies over the past two decades.

The very existence of GM, Ford Motor Co. and many Detroit- area auto suppliers is threatened by the steady increase in wages, health-care costs and pensions that the United Auto Workers union has won for its members since 1947, he said. Retirement costs were manageable when workers retired at age 65 and died five years later; they're debilitating to companies when workers retire at 50 and live 40 more years, Miller said.

Labor Concessions

Miller, who became Delphi's CEO on July 1, said he doesn't expect GM and Ford to go bankrupt after 2007 contract talks, predicting the UAW will accept fewer jobs and smaller wages and benefits. The alternative, he said, would be for the UAW to cripple GM and Ford, where most of its highest-paid members work.

Miller also said that Delphi workers can save their pension plans if they agree to work for about one-third of their current pay. Two days before the filing, union leaders said Delphi sought to reduce production workers' pay from $27.50 an hour to as little as $10.

He called on government, labor and business leaders to collaborate on creating a ``new deal'' on health care that wouldn't concentrate both costs and risks on individual companies, particularly when workers themselves are opting to switch employers more frequently.

Who Will Buy Cars?

``High wages didn't just drop out of the sky,'' said Harley Shaiken, a labor professor at the University of California at Berkeley. They reflected ``companies that made a lot of money while they were paying them. The fundamental question is still who's going to buy the cars. If autoworkers can't do it, who exactly is going to have the purchasing power to promote demand- led growth?''

The Delphi bankruptcy will disrupt the entire U.S. auto industry, and investors should sell the debt of parts suppliers such as Dana Corp. and Cooper Tire & Rubber Co., according to a note by Barclays Capital analysts. Standard & Poor's yesterday lowered GM's debt rating one level deeper into a junk on concern the bankruptcy will increase parts costs or disrupt vehicle production.

Separately, Delphi's bankruptcy filing may be a ``long-term positive'' for GM because it will force the automaker to renegotiate its labor contracts, analysts at JPMorgan Chase & Co. said.

GM shares, which sank $2.81, or 9.9 percent, in U.S. trading yesterday, rose 76 cents, or 3 percent, to $26.24 at 10:13 a.m. in New York Stock Exchange composite trading. Delphi shares were suspended because of ``abnormally'' low trading, the stock exchange said in a statement today. Delphi shares dropped 79 cents yesterday to 33 cents.

Still Negotiating

Separately, GM and the UAW are still negotiating on the automaker's demand that blue-collar workers make out-of-pocket health-care payments closer to those of salaried workers. GM believes it has a legal right to cut health care for retirees without the union's consent, but still hopes the union will agree, Miller said.

Salaried workers at GM pay 27 percent of the cost of their health-insurance costs, compared with 7 percent for UAW members, said Toni Simonetti, a GM spokeswoman.

Simonetti declined to comment on 2007 contract talks. She confirmed that GM is still talking to the UAW about trimming health costs. ``Our strong preference is to do so cooperatively with the union, but we need to get this done one way or the other,'' she said.

``Speculation on what may or may not happen with our UAW contract is way premature,'' said Jon Pepper, a Ford spokesman.

The Right Idea

GM had the right idea when it spun off Delphi in 1999, Miller said. The automaker had reduced its labor and wage costs while seeding a new company with ``sophisticated technologies'' to keep new products flowing to the automaker.

Problems arose as a decline in GM's North American production reduced revenue, leaving Delphi unable to cover the high union wages it inherited from the automaker. GM, having cut production, couldn't take back excess workers from Delphi as planned. That left Delphi saddled with 4,000 idled workers that it had to pay under contract.

Delphi's bankruptcy stems from ``the fundamental problems that have crippled the domestic auto industry: an inflexible and uncompetitively expensive labor union, along with a toxic relationship between automaker and supplier,'' said Credit Suisse First Boston analyst Chris Ceraso said in a research note.

GM, Ford and DaimlerChrysler AG's Chrysler unit, the three biggest U.S. carmakers can no longer cover ``premium wages'' because they are being undercut by the Asian and European rivals that are paying workers less in their U.S. plants, Miller said.

Lost Power

``There is now such a critical mass with non-traditional automakers in North America,'' Miller said. ``The Big Three no longer have the pricing power, and the pricing power is being set by the low-cost producers.

``This is what happened in steel and airlines and what is happening now before your eyes in the automotive industry,'' said Miller, who has helped lead Bethlehem Steel Corp. and United Airlines parent UAL Corp. through Chapter 11 restructurings.

UAW members are ``resigned'' that they are going to have to take some cutbacks, said Al Benchich, president of UAW Local 909 at a GM transmission factory in Warren, Michigan. They won't agree to let the company cut everything.

``People fought and died to win the benefits and wages that we've gotten over the years,'' said Benchich. ``It wasn't just handed to us. So now we'll probably have to take to the streets again to keep what we've won or get it back.''

Miller said if Delphi workers strike, their plants will risk being shut.

Rick Wagoner, GM's chief executive, has been negotiating with the UAW to lower health-care costs and retiree benefits. Those costs, GM says, add more than $1,500 to the cost of every car and truck sold in the U.S.

GM Cuts

In June, Wagoner announced the company would eliminate 25,000 jobs, or 17 percent of the company's workforce, by 2008 and close an unspecified number of plants. The automaker also plans to buy more parts in lower-wage paying countries to reduce costs.

Negotiations aimed at a reorganization plan filed voluntarily with the bankruptcy judge could include bonuses to encourage long-time Delphi workers to retire, quit or accept lower pay, Miller said. These ``buyouts'' would enable Delphi to hire a new workforce starting at $14 an hour, and in turn, save both Delphi and GM money. GM will have to decide whether the savings would be sufficient for the company to help pay for Delphi's buyouts, Miller said.

Asked to compare his situation to Wagoner's, Miller said: ``My problem is more urgent; Rick's problem is more serious.''

To contact the reporter on this story:
Jeff Bennett in Southfield, Michigan, at [e-mail];
John Lippert in Southfield, Michigan, at [e-mail]


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