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Buyouts only a partial solution for Delphi

The plan yesterday to offer buyouts to thousands of hourly union workers at Delphi Corp. may not end the company's troubles as the auto parts giant struggles to cut costs and emerge from bankruptcy protection.
/ Source: a href="" linktype="External" resizable="true" status="true" scrollbars="true">The Washington Post</a

The plan yesterday to offer buyouts to thousands of hourly union workers at beleaguered Delphi Corp. may not end the company's troubles as the auto parts giant struggles to cut costs and emerge from bankruptcy protection.

Under the agreement between Delphi, General Motors Corp. and the United Auto Workers union, about three-quarters of the 24,000 Delphi workers represented by the UAW could retire early or move to jobs at GM.

Even though the plan would trim Delphi's labor costs, it may not avert further skirmishes with labor, analysts said. If most of the targeted UAW workers take the buyouts, the union could still be fighting deep pay cuts and possible plant closings.

Gary Chaison, a labor relations professor at Clark University, said the three-way deal -- it also includes buyouts at General Motors -- creates only a short-term fix to the high labor costs that forced Delphi into Chapter 11 bankruptcy protection in October.

"This is going from the fire to the frying pan," Chaison said. "My view is people shook hands and walked out of the room, but no one was smiling because they knew there are still troubles ahead."

Others, however, called the deal a major breakthrough because it would allow Delphi to shed its most expensive workers, the older ones who fetch higher salaries and eat up a huge chunk of health-care dollars.

"This is a roadmap that helps them get to where they need to go," said David Cole, chairman of the Center for Automotive Research, a nonprofit organization in Ann Arbor, Mich.

Deadline looms
But still looming is the March 31 deadline set by Delphi's chief executive, Robert S. Miller, who threatened to ask the bankruptcy court to void Delphi's labor contracts if the union did not agree to dramatic pay cuts. Delphi has proposed slashing pay by more than half, to as little as $9.50 an hour.

The UAW threatened to strike, a move that would practically paralyze GM, the world's largest automaker and Delphi's largest customer.

Yesterday, Delphi did not back off from the end-of-March deadline.

But Cole said the plan announced yesterday should ease pressure on both sides. The wage concessions would involve fewer workers if many employees retire early as expected, he said. And having fewer workers would cost Delphi substantially less.

Also, if Delphi should replace the departed workers, any new ones would come in with lower pay because of a contract negotiated nearly two years ago with the UAW that allows the company to pay lower wages to new hires in return for having Delphi invest in and build products in U.S. plants.

"Things now have become more predictable," Cole said.

Under the plan, 13,000 UAW workers at Delphi could retire early with benefits. Workers who have more than 30 years of service at the company could walk away with a lump sum of $35,000.

Another 5,000 employees could opt to work for GM, which agreed when it spun off Delphi in 1999 to take back workers Delphi could not afford. GM would pay them their current salaries and give them health-care and pension benefits when they retire.

Many analysts say some Delphi workers are getting a sweeter deal than what's being offered to thousands of GM employees. For instance, GM's hourly employees with 10 or more years of seniority would have the option of one-time payments of $140,000 to sever all ties to GM and Delphi. But while they could keep their accrued pensions, they would lose health-care and other post-retirement benefits. Employees with fewer than 10 years could chose a one-time payment of $70,000 to walk away under a similar circumstances.

GM said it didn't know the full costs associated with the buyout program or how many workers would take it. GM has recorded a $3.6 billion charge for Delphi-related expenses. The deal requires the approval of the bankruptcy court judge in the Delphi case.

Delphi said it is trying to strike similar deals with other unions that represent about 6,000 workers at the company.

"An accelerated attrition plan will help enable the transformation of our U.S. manufacturing and support operations into a much more competitive cost base," Rodney O'Neal, Delphi's president and chief operating officer, said in a statement.

Kevin Tynan, a senior equity analyst at New York-based Argus Research, said he expects most of the targeted Delphi workers will move to GM or take the buyout rather than risk waiting for a sweeter deal or, worse, no deal at all.

"It's sort of, they can take this now or maybe take nothing later" if Delphi collapses, Tynan said.

But Tynan said he is not convinced the wage talks will get easier because of this deal. UAW negotiators, he said, may feel pressure from other unions to hold their ground, especially since it has made concessions to Delphi and GM in the past.

"The UAW may feel that if it accepts lower wages, it's setting a precedent for organized labor across the country," Tynan said.

Some experts who track the auto industry say cost-cutting pressures will keep mounting for Delphi even if the UAW accepts lower wages.

Charles Craver, a labor and employment professor at George Washington University, said Delphi will be hard-pressed to keep up with the cheap labor abroad.

Delphi pays its hourly workers about $75 an hour when wages, pensions and other benefits are tossed in. Under the deal two years ago to pay lower wages to new hires, wages would start at $14 an hour.

"Even if they're paying new workers $12 to $14 an hour, that's 10 times what they would pay in Mexico, maybe 20 times what they would pay them in China," Craver said. "The pressure would still be on Delphi to do what we euphemistically call 'outsourcing,' which means sending jobs abroad."