General Motors Corp.'s offer of buyouts to tens of thousands of older, high-wage factory workers yesterday is the latest effort to transform an outmoded U.S. auto giant besieged by more nimble global rivals.
The landmark agreement among GM, the United Auto Workers union and parts maker Delphi Corp. -- a former GM subsidiary now in bankruptcy protection -- offers employees $35,000 to $140,000, based on seniority and age.
It is unclear how many of the auto goliath's 105,000 hourly workers will take the buyouts, though a significant portion are expected to. About 13,000 workers at Delphi -- GM's largest parts supplier -- will also be eligible for the buyouts.
Once the cornerstone of American manufacturing and cultural might, GM is laden with massive pension and health-care costs for its hundreds of thousands of retirees and their families. Meanwhile, vehicle sales have been hammered by high fuel costs while increasing waves of foreign rivals hit U.S. shores, shrinking GM's once-dominant market share from more than 50 percent to about 26 percent.
"GM invented the modern corporation, and it worked really well, but now it's over," said Sean McAlinden, the chief economist at the Center for Automotive Studies. "This is the end of 20th-century industrial America and hopefully the beginning of 21st-century industrial America and a globalized auto industry."
Under the new deal, GM and Delphi hourly employees -- mostly factory workers -- have a range of options to leave the two companies. For instance, workers with 10 or more years of seniority can take a one-time payment of $140,000 to sever all ties to GM and Delphi. The workers would keep their accrued pensions but lose health-care and other post-retirement benefits. Employees with less than 10 years can chose a one-time payment of $70,000 to walk away under similar circumstances. As many as 5,000 Delphi workers could move back to GM jobs based on a condition of GM's 1999 spinoff of Delphi.
Workers over 50 years old with at least 10 years on the job can retire immediately with full health-care and pension benefits. GM said it didn't know the full costs associated with the buyout. The deal requires approval of the bankruptcy court judge in the Delphi case.
If a large number of workers take the buyouts, yesterday's agreement will slash company payroll costs and may help quell troubles extending beyond GM. At Delphi, UAW members had threatened a strike, as management demanded hourly wage cuts of more than one-half. Yesterday's deal somewhat reduces the likelihood of a costly Delphi strike that would have further destabilized cash-strapped GM and potentially engulfed the industry.
Only temporary relief?
But some industry experts said the deal only temporarily relieves the burden of pension and health-care costs without fixing the problem.
GM pioneered generous benefits for workers, mainly the so-called "30 years and out" paradigm that guaranteed lifetime employment and retirement. But now, because of skyrocketing health-care expenses and intense global competition, GM says it can no longer afford the bills.
Worker reaction to yesterday's news was mixed. Some UAW members who posted to online forums complained that the union had sold out its membership.
Todd Jordan, a 27-year-old machine operator at a Delphi plant in Kokomo, Ind., said he will encourage co-workers not to take the offers. He said more focus needs to be placed on mismanagement at GM and Delphi as the source of the companies' woes.
"I just don't think that getting rid of autoworkers in America is the answer," Jordan said in an interview. "Downsizing our labor force will hurt our economy and hurt our quality in the factory."
Jordan said he fears an exodus of more senior workers who know the facilities' operations best. Another fear is that incoming workers at lower wages would feel sold out by other people in the plant. "How's it going to work if I'm working beside somebody who makes $14 an hour and I make $27," he asked.
But Melvin Davis, vice president of UAW Local 2164 in Bowling Green, Ky., and a 30-year veteran of GM, said workers have been enthusiastic about what they've heard so far. He said he is unsure if he will take a buyout until he sees the details. Also, industrial jobs in the area are hard to find, he said.
"The main thing everyone is looking at is the dollar sign," Davis said. "Overall, it seems to be a pretty good offer."
Meanwhile, Larry Jones, 52, a 28-year veteran of a GM plant in Romulus, Mich., said his acceptance of the buyout would depend on the details, which he has not seen, including whether health-care and other benefits are guaranteed.
If he takes it, he plans to become a blackjack dealer in a nearby casino. "I'd love to see a person with 30 years take the retirement so young people can get a job and get a decent income," he said, sipping a Bud Light in a Romulus bar last night.
'A critical milestone,' Delphi says
Delphi called the deal "a critical milestone in its restructuring." The agreement could open the door to lower pay, plant closings and divestitures that will affect Delphi's remaining workers. These are all thorny areas for labor. Delphi had threatened to slash union workers' salaries to as little as $9.50 per hour from the current rate of $27 per hour. The proposal galvanized labor opposition, forcing Delphi to back off. GM was drawn into the talks because of legal and financial ties to its former subsidiary Delphi and the prospect of a strike.
Delphi said it will continue talks with GM and the UAW to resolve remaining issues. The deal outlined yesterday does not specify what Delphi workers will be paid once the supplier emerges from bankruptcy protection, a key issue for labor. Delphi said it will continue talks with the union to work for a comprehensive agreement, including the wage issue, by March 30.
If the company cannot settle with the union, it can extend the deadline for talks or ask a bankruptcy judge to throw out the existing high-wage contract and impose lower wages.
According to the Center for Automotive Research, the average age of a GM worker is 50, and many are within a few years of hitting the 30-year retirement point, if they haven't already surpassed it.
In a statement, GM chairman and chief executive Rick Wagoner said he is pleased with the deal. Wagoner has cited the resolution of the Delphi situation as a major corporate objective.
Wagoner and his team at GM have lots of other problems to untangle. GM lost $10.6 billion last year and is in the midst of a vast overhaul of its North American manufacturing operation. GM is wrestling with an ongoing government accounting investigation, important new-vehicle launches and the complicated sale of its GMAC financing subsidiary.
GM has been hounded by financial analysts and investors who are pressing for faster change at the automaker. Some have predicted bankruptcy for GM if its many problems aren't solved.
GM is heavily dependent on Delphi parts. For example, Delphi supplies heating and air-conditioning units for GM's full-size sport-utility vehicles, the success of which are key to GM's ability to reverse steep financial losses. In recent years, GM executives working closely with UAW leaders have defused problems that could have blown up into strikes.
Charles Craver, professor of labor and employment law at George Washington University, called yesterday's deal a temporary slowdown in a "rush to the bottom" for the cheapest labor. He said that in the long run, GM and Delphi will have to start laying people off.
Craver said U.S. industrial companies are in dire straits because health-care and retirement costs in the U.S. are so high. "We have to do something that will help fill that gap and alleviate the huge amount of pressure on private employers," Craver said.
Staff writers Neil Irwin, Dale Russakoff and Dana Hedgpeth contributed to this report. Russakoff contributed from New Jersey and Hedgpeth from Michigan.