[lbo-talk] "These were the aristocrats of labor"

Marvin Gandall marvgandall at videotron.ca
Mon Oct 10 05:54:00 PDT 2005


With Delphi Filing, Tougher Times for Auto Industry Workers By DANNY HAKIM New York Times October 10, 2005

DETROIT, Oct. 9 - When Delphi, the nation's largest auto supplier, filed for bankruptcy on Saturday, it was the latest blow to the American auto worker's gilded age.

Ninety-one years ago, Henry Ford shocked corporate America by abruptly announcing that he would roughly double his workers' average wages, to $5 a day. For the first time, many Ford line workers could afford the Model T's they were assembling.

In recent decades, once-powerful labor unions like the Teamsters and United Steelworkers and, most recently, airline workers have been in retreat. At the same time, the United Automobile Workers, Delphi's largest labor union, has maintained some of the highest wages and most generous benefits in industry, even as its membership has been cut in half since the 1970's.

But the bankruptcy filing will be a major test.

"It is a crossroads," said Gary N. Chaison, a professor of industrial relations at Clark University in Worcester, Mass. "These were the aristocrats of labor, and now they're in the position that their jobs are going to become lower-wage manufacturing jobs, as if they were producing hairdryers."

"The ramifications from Delphi are going to be tremendous," he added. "The union is going to have to assume a defensive position, and this is a union that's used to being on the offensive."

The challenge comes as the A.F.L.-C.I.O., which includes the auto workers' union, is going through an identity crisis. A few prominent unions have recently split from its ranks in a dispute over how best to salvage the labor movement. Should the U.A.W. be forced into major concessions for Delphi, or should the bankruptcy court force a sharp cut in wages and benefits, it would influence the U.A.W.'s negotiations with General Motors, Ford and the Chrysler division of DaimlerChrysler to replace its labor contract, which expires in 2007.

Delphi, a division of G.M. until 1999, is seeking to cut pay for its 34,000 unionized workers by as much as two-thirds, to as little as $10 an hour. One union local pointed out in a letter to its members that at those wages, they could no longer afford to buy the new cars that contained the parts they produce.

"You couldn't even afford the gas," Douglas A. Fraser, the former president of the U.A.W., said in an interview on Saturday. "The guys, particularly the veteran guys, are willing to do something, but not completely emasculate the agreement."

Whether Delphi, which has lost $5.5 billion over the last six quarters, can actually succeed in making such steep cuts, even while in bankruptcy, remains to be seen, and the union could strike if its contract is canceled in court.

What is clear is that the enviable wages and benefits Delphi workers have enjoyed are going to be harshly recalibrated to account for global competition, and that more of the company's work will be shipped abroad. And the cuts that have swept through domestic auto suppliers - several others are already bankrupt - are seen as a likely prelude to changes that will eventually reach G.M., Ford and Chrysler, as they have swept through other old-line American industries struggling to compete globally.

"If we're going to operate these factories, we need competitive wages and benefits," Robert S. Miller, Delphi's chairman and chief executive of the last three months, said in an interview on Saturday. "I don't think this is the end of life as we know it, but our customers won't pay for these premium wages and benefits."

Bill Wineland, a 49-year-old line worker at a Delphi plant in Flint, Mich., had a different perspective.

"Who's going to afford to buy these cars? Nobody making $10 or $12 an hour can afford a $30,000 automobile," he said. "Henry Ford said a long, long time ago that people should have enough money to buy my product. Everybody thought that was crazy, but he made it work."

Mr. Ford was by no stretch of the imagination a saint, or even particularly consistent. In his later years he would cut wages, and his company would have bitter confrontations with the fledging unions. But his $5-a-day wage was a transforming event. Within a week of Ford's announcement in January 1914, more than 10,000 job seekers descended on a Ford plant despite near-zero temperatures and blizzards, leading the police to turn fire hoses on the crowd in a failed attempt to prevent a riot.

"We want those who have helped us to produce this great institution and are helping to maintain it to share our prosperity," said James Couzens, Ford's treasurer at the time and the man many historical accounts credit with the idea of the $5 wage, in part as a motivational tool.

Of course, Ford did not have to compete against Toyota, Honda and Nissan then. Or against the wages and benefits offered in Mexico or China or Thailand. And therein lies the unraveling of the compensation that was negotiated over decades by the U.A.W., including health care coverage with no monthly premiums and formidable protections against loss of jobs.

Jonathan Steinmetz, an analyst at Morgan Stanley, said he did not see the Big Three necessarily coming to the same crossroad as their domestic suppliers. The competitive pressures are intense, but not the same, because Toyota and other foreign competitors are building more plants in the United States and paying wages and benefits somewhat comparable to the Big Three's. Automobiles sold in the United States are not yet being assembled in China, though parts are being made there.

What will not likely be sustained, however, are the benefits. G.M. spends $1,500 a vehicle on health care, more than it spends on steel. Every American G.M. worker supports nearly three retirees.

"It's hard to have a deflationary environment for car prices and health care inflation of 10 percent," Mr. Steinmetz said.

Delphi's filing could push G.M. closer to a revamping. Delphi said in its bankruptcy filing that it would seek to stop paying health care and life insurance benefits for its 12,000 American retirees. G.M. had agreed to pay those benefits in the event of bankruptcy. And while Delphi's pensions could potentially be the latest multibillion-dollar plan thrust on the government, G.M. also agreed to pay pension benefits above the portion the government insures.

In all, G.M. said this weekend that the filing could increase the long-term liabilities on its books by as much as $11 billion. Having lost more than $2 billion in the first half of 2005, G.M. can ill afford new financial burdens.

The Delphi that emerges from bankruptcy will have a smaller, poorer work force. Currently, Delphi's American workers make about $65 to $70 an hour including benefits, more than 10 times, at least, the compensation of workers doing similar jobs in Mexico and China. Delphi wants trims that would take that below $20 an hour, in part by cutting wages to $10 to $12 an hour from $26 to $30.

Workers were particularly embittered when Delphi made an 11th-hour move, a day ahead of its filing, to sweeten substantially the severance packages available to 21 top managers. The company said it was a necessary step to retain executives.

"It's a slap in the face," said Al Coven, president of a union local in Saginaw, Mich. "They've always done stuff like that. Over the years we've had downturns in the economy. We give stuff up and they turn around and give their executives big bonuses."



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