By Katie Merx & Jewel Gopwani Detroit Free Press June 23, 2007
Delphi Corp., General Motors Corp. and the UAW said Friday that they reached a tentative contract agreement for 17,000 union workers.
None of the parties would disclose the details of the contract.
But people familiar with the agreement said it features $105,000 in special payouts over 3 years, called buy-downs, for employees who are paid the same as GM employees.
In exchange for the three annual payments of $35,000, those senior workers would see their hourly wage cut from about $28 to so-called supplemental rates of $14.50 to $18.50, starting Oct. 1. During that time, they can also try to flow back to GM.
Newer workers already paid at the supplemental rates will see no change, but those with at least 18 months of seniority will be eligible for a severance package if their plant is closed.
A ratified agreement is necessary to move the former GM parts arm out of bankruptcy and free up the union's negotiating staff to tackle summer contract negotiations with the Detroit automakers.
A deal also would avert a strike that could cripple Delphi and GM, its largest customer and former parent, by leaving it short of parts.
Troy-based Delphi, spun off from GM in 1999, makes wire harnesses, satellite radio receivers and heating and cooling systems, among other parts.
Delphi workers are to vote on the tentative agreement Thursday.
"If ratified, we believe this agreement will be a significant milestone in our transformation and a major step towards emergence," John Sheehan, Delphi's chief restructuring officer, said in a statement.
What it all means
If GM is paying for the annual buy-downs, then Delphi and its owners effectively run a parts maker that pays competitive wages, as opposed to the higher pay common among those who assemble vehicles.
The workers getting the buy-downs appear to effectively break even over the next three years, while they weigh their options.
GM has said it expects to pay Delphi between $300 million and $400 million in annual labor-related charges, on top of $7 billion in retirement and labor costs. But the Detroit automaker expects those costs to be offset by nearly $2 billion in annual savings once Delphi's costs are competitive.
"GM is encouraged by the continued progress and remains committed to working with the UAW, Delphi and other parties to reach a final resolution that will allow Delphi to emerge as a more competitive strategic supplier," the company said in a statement.
Lower wages were seen as necessary for Delphi to attract private equity investors that have agreed to buy the supplier out of bankruptcy, if its costs are competitive.
Delphi is renegotiating its financing pact after announcing earlier this year that it expected its lead bidder, Cerberus Capital Management, to drop out of the deal. Cerberus is working to close its purchase of the Chrysler Group.
Top union officials from across the country learned about a proposal during a meeting in Detroit on Friday.
The lower wages are higher than the $12 an hour Delphi proposed more than a year ago.
"That's not a trivial difference," said Harley Shaiken, a labor professor at the University of California at Berkeley. "That truly is the difference between the working poor and something that at least points to the middle class."
The deal is clearly better than Delphi's early offers, but Shaiken warned that any concessions can be hard to swallow.
"You're going to have some, I think, apprehensive, some angry workers," Shaiken said. "But I think you'll also have a workforce that knows the realities that are out there, and they're pretty tough right now."
After the bruising negotiations and sometimes-inflammatory rhetoric, there may be some ill will between the UAW and Delphi.
In its statement announcing the tentative agreement, the UAW did not mention Delphi by name. A statement from UAW President Ron Gettelfinger and Vice President Cal Rapson said an understanding between the union and GM "resulted in a tentative agreement with their former parts operations."
While many have pointed to the UAW's membership declines and concessions as a sign of diminishing influence, Shaiken said the tentative agreement indicates that the union leadership is not weak.
"You've got to have a strong union to talk about buy-downs in the first place," he said.
The union accepted a two-tier wage system in 2003 that allows Delphi to offer significantly lower wages and benefits to new hires.
And last year, union leaders agreed to a program, subsidized by GM, in which more than 12,000 UAW workers took buyouts or retired early in exchange for cash payments.
More talks coming
Delphi filed for Chapter 11 bankruptcy protection in October 2005, facing production cuts from its largest customer, rising commodity prices and legacy costs that the company says keep it from offering competitive prices.
In addition to seeking lower wages, the company has set a course to sell or close 25 U.S. plants as it narrows its focus to six areas, including electronic systems and climate control.
Talks had been going on for more than a year for a deal that comes just one month before the UAW is expected to start contract talks with GM, Ford Motor Co. and the Chrysler Group.
Observers have cautioned against reading too much into these talks as a pattern for negotiations with the automakers.
For one thing, Delphi is a special case, because it has former owner GM to help pay for its deal.
But Shaiken said this could prove to be definitive for other auto suppliers.
"Any parts maker that pays more than this will be demanding or imposing a similar deal," Shaiken said.
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