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The Delphi Dilemma
By Region 8 Webmaster John Davis

On October 08, 2005 Delphi Corporation filed for bankruptcy sending a tidal wave of shock throughout the automotive industry, particularly through Delphi's workforce. The move ended months of speculation following the hiring of Bankruptcy Mogul Steve Miller to head the company in July.

Miller replaced former Delphi CEO J.T. Battenberg who retired early in the year in the wake of an accounting scandal uncovered in an investigation by the SEC and which could result in possible criminal charges against some former Delphi executives. In the weeks that followed the announcement, Delphi stock value plunged and is currently trading in the range of about 30 cents per share after opening at $18 per share during the initial public offering in 1998. Literally thousands of stockholders have see the savings wiped out in the fallout, while the corporate cronies have lined up millions in bonuses for themselves.

Bankruptcy Filing
So the dirty dealings of a few in the top have resulted in the demand of drastic cuts for those of us at the bottom. On October 06, 2005 the International Union released to the membership Delphi CEO Miller's proposal for contract changes that would include slashing wages to $10-$12 an hour for production and $19 for skilled trades. Other changes included drastic cuts to health care and pensions. However, as bad as this deal was, the proposed contract he offered the UAW on October 21, 2005 was even worse. In that proposal he offered wages of $9 to $10.50 per hour. These drastic cuts come on the heels of announcements to offer incentive packages to the top 480 executives of up to 250% of the salary. To combat the criticism Miller announced that he would be working for $1 a year, but would be keeping his $3,000,000 signing bonus.

In his petition to the bankruptcy court Miller ask to set aside $87,000,000 to be used to line the pockets of those who managed the company into the shape it is in. So, the current bankruptcy code is set up to reward those at fault and place the burden on the innocent victims of their acts.

“Some people insist that fairness requires that we slash wages across the board if we cut wages for anyone,” Miller states. “Well, I am sorry. My job is to preserve the value of this enterprise as we restructure. We have to adjust to market conditions and appropriately pay for our human capital at each level. There are large disparities in this country and around the world in what people can expect for mowing the lawn, versus managing a huge business. It may not be fair, but it is reality.”

“The way the code is now structured, the temptation is to make the workforce pay for management's mistakes, rather than taking all of the stakeholders into account and re-building the company together,” says Harley Shaiken, a professor at the University of California at Berkeley who specializes in labor issues. Chapter 11 calls on management to bargain with unions in good faith to reduce costs, but also permits management to petition the court to void labor contracts and substitute whatever terms it chooses. Miller has asked the court to set a deadline of December 16, 2005 to negotiate a new contract. If a new agreement cannot be reached by then, a court date will be set in January to terminate the current contract. Once the judge rules to terminate the existing agreement, then all strike clauses are terminated as well and the UAW could strike.

UAW Response
UAW President Ron Gettelfinger and Vice President Richard Shoemaker issued the following statement concerning Delphi's first offer following the bankruptcy filing.

“The UAW received Delphi's contract proposal today. In light of Delphi CEO Steve Miller's recent public comments, we were not surprised that Delphi's proposal displays a total lack of concern about the impact it would have on Delphi workers, their families, their communities and our nation. Delphi's proposal is designed to hasten the dismantling of America's middle class by importing Third World wages to the United States. In short, the proposal faithfully reflects a vision of an America in which an elite few live in luxury while everyone else struggles to make ends meet. Maybe some believe the American Dream is over; the UAW rejects that dismal idea and will continue the struggle to fulfill that dream.”

“The Union is committed to preserving the rights and protections earned through collective bargaining. In anticipation of a court fight over the “necessity” for the concessions sought by the Company, the UAW has begun a thorough analysis and review of the Company's financials, its business plan, restructuring scenarios and alternatives. The UAW will do everything in its power, both in court and at the bargaining table, to protect the interests of its members and retirees. And we will work to assure that all of Delphi's creditors, shareholders and other constituencies make appropriate sacrifices in any restructuring effort - so that Delphi does not single out its active and retired employees as the only groups making sacrifices.”

Delphi's Move Overseas
During the week of October 21, 2005 Delphi returned to the bankruptcy court to seek approval of a $2 billion financing package to improve the liquidity of the corporation. This comes on the heels of a $2.6 billion loan that was made this summer to improve liquid assets. However, it is interesting that Delphi has made it abundantly clear the bankruptcy only covers the U.S. operations, that no non-domestic locations are included in the filing. But, of the $2 billion financing package approved last week, the courts granted them permission to shift part of that money to the overseas units. The question then becomes, if the bankrupt U.S. operations made the loan, then who pays it back? Are we to assume that money is being borrowed against the U.S. operations and being used for foreign facilities? If this is the case, then it becomes easy to see how the non-U.S. operations are doing so well.

Back in the late 1980's and early 1990's, Plant 21 of Delphi's Alabama Site was building TC Pumps, with 90% of that volume being shipped to Europe. The product line lost massive money, but we were told that it was ok because the TC Pump was helping Delphi establish their name in Europe. Our location paid the price in terms of lost profitability to allow the corporation to build a name overseas. After years of losing money on the pump, the product line was moved to Michigan and Europe to “reduce losses.” You have to wonder how much of the losses we sustained as a result of that venture went into building plants in foreign countries to take business away from the unionized U.S. workforce. The argument could be made that Delphi used their U.S. operations as a cash cow to finance their expansion into foreign countries and markets. Now with borrowing money against the U.S. operations and earmarking part of that for overseas, you have to wonder if the tradition is still continuing.

Delphi's Fuzzy Math
The major reason Delphi cited for the bankruptcy filing was “high legacy issues and burdensome restrictions under current labor agreements that impair their ability to compete.” In other words Steve Miller thinks the workers are the reason he is losing money. However, when you break down how Delphi does their accounting, then his numbers simply don't support the position.

Delphi calculates profit by subtracting total cost from sales volume, which is standard practice. To measure their total cost a formula is used based on manufacturing expense, direct material and divisional allocations. Direct material is all purchase products that are part of the final assembly. For example, the steel purchased for forming in a Halfshaft is direct material. The wiring assembly for a Magnasteer Rack and Pinion is direct material. Divisional allocations are the cost we pay for having the privilege of being part of them. This includes product design, sales and executives. The final piece is manufacturing expense and that is where we come in. Manufacturing expense is everything it requires to actually build the product. Indirect material - such as tooling, gloves and etc. and people cost. Each plant's budget is based solely on manufacturing expense because we have no control over the other two pieces of the puzzle. That is how we can meet our budget but still lose millions of dollars in profit.

Last year alone, the Automotive Holdings Group - those 12 plants that are suppose to be the worse in corporation, averaged an 11% improvement in manufacturing cost. This compares with an employee compensation increase of about 5% - including wages and benefits. So while employee cost rose 5%, the effectiveness of those employees improved 11% at the Automotive Holdings Group alone. In other words, the effectiveness of employees rose at twice the rate of their compensation. With that being the case, how can employee compensation be the major reason for the financial difficulties? There is no denying that our all in compensation rate is higher than that of our competitors in the United States, but not to the point that Miller is suggesting. Considering Delphi's formula for calculating profit, any restructuring plan would involve looking at cost at all levels as oppose to simply going after people. But then again, that is the easiest way to address the issues with the least amount of effort from the top management structure - you know, those people who need that 250% retention bonus to stay on.

Adversity Brings Solidarity
On October 16, 2005 UAW President Ron Gettelfinger told the Detroit News “The approach that he has taken is clearly, clearly, one of angering the membership. But I can tell you one thing; He has definitely solidified the rank-and-file of our union.”

Many of our members labor under the misconception that the company has given us all these wages and benefits through the years. This idea even goes back to the GM days when many referred to GM as “Generous Motors.” However, Miller's contract proposal should show each member at a Delphi facility just what the company thinks of you. Everything that is missing in his offer from the current agreement we can thank the UAW for. The wages and benefits we have enjoyed have been the result of years of collective bargaining and the sacrifice and struggles of generations of UAW members. It is now our turn to fight to protect what we can of our agreement. Bankruptcy changes the rules and makes it harder to maintain all of our gains, but that doesn't mean that we give up the ship.

Steve Miller has stated that any location that goes on strike will go to the top of the closure list. Striking is the union's most effective bargaining tool and we can't be bullied into giving that up. Besides, if there were a strike more than likely it would be a nation wide walk out. In response to Miller's comments UAW Vice-President Richard Shoemaker told the press “Strikes are part of the collective bargaining process in normal times, and they certainly end up as a part of this process. It would be presumptuous for anyone at this stage to suggest that is, or is not going to happen. But it is certainly one of the options available at this time.”

Options for Our Members
In the 1999 UAW-GM national agreement, the UAW required GM to make a commitment to the Delphi workers to guarantee their pensions should Delphi or successor companies fall into financial distress, terminate its pension plan or cease to offer credit service before October 2007. In this agreement GM must provide up to 7 years of credited service at the level and scope in effect at Delphi at such time to covered employees working at Delphi. In a nut shell this means that if Delphi terminates or reduces their pension obligation either through contractual changes or turns it over to the PBGC, then whatever the short fall between what Delphi retirees would draw in retirement and benefits would be made up by GM to the same level as a GM retiree. In addition, active employees would be covered in the case of building credited service toward pension obligations for a period of seven years from the point that Delphi or successor companies cease to offer credited service to those members employed at Delphi locations that were GM at the time of the spin-off. Just understand this seven year guarantee doesn't mean that you would be given seven years of credited service, but it means that you could stay at Delphi for up to seven years and build time toward a GM guaranteed pension.

As part of a deal between the UAW and GM to make adjustments to health care coverage in October 2005, GM acknowledged their liability to those Delphi workers who were one time GM employees.

Where Do We Go From Here?
Over the next few weeks and possibly months, the two sides will continue to negotiate. The courts have placed a deadline of December 16, 2005 for a new settlement, but that doesn't mean that negotiations will end at that point. In a recent interview with the Washington Post, Steve Miller stated that if the judge took the matter of the contract under his advisement on January 24, 2006, then more than likely it would take him several weeks to come to a decision about fair compensation. The UAW and Delphi could continue to negotiate on their own during this time and could reach agreement before the judge ruled on the matter. Even Miller feels this would be a better scenario for everyone involved rather than turning the issue over to the courts totally. Miller also recently conceded his proposal is just that - a proposal. We have to remember the UAW hasn't agreed to anything as of yet.

All we can do in the short run is continue to focus on doing our job and place our trust in the International Union. Protecting our customers during this period is vitally important to maintain our current business once the details of a new agreement have been worked out.

Solidarity in the ranks is more important than ever before. Miller's outlandish comments have infuriated our membership and brought us together. We can never forget that solidarity is the single greatest power we have and that alone can see us through these dark days.

Quotable Quotes By Steve Miller

“When you buy a Hyundai you get a satellite radio as your option, but if you buy a Chevrolet you get social welfare as an option. Long term, the customer is going to desert you if you try to price for your social-welfare costs,”

“The revamping of Delphi in bankruptcy “will put the unions in the difficult position of perhaps having to make trade-offs between maximizing the pay and benefits of active workers versus maximizing the chances for saving these pension plans,”

“Some people insist that fairness requires that we slash wages across the board if we cut wages for anyone. Well, I am sorry. My job is to preserve the value of this enterprise as we restructure. We have to adjust to market conditions and appropriately pay for our human capital at each level. There are large disparities in this country and around the world in what people can expect for mowing the lawn, versus managing a huge business. It may not be fair, but it is reality.”

Speaking of UAW President Ron Gettelfinger: “I wouldn't want to be in his shoes for all the tea in China. He's going to have to help half a million of workers get used to the idea that globalization has taken away the ability to have someone who mows the lawn or sweeps the floor get $65 an hour.”

“If you work at Delphi you may have to buy a Chevrolet instead of an Escalade. I was talking to some hourly workers at Boeing and they can't buy a Boeing airplane.”

“Any plant that wants to be at the top of our plant closure list should engage in industrial action as a way of sending that message.”