Delphi Bankruptcy A Piviotal Point That Can Shape Detroit's Future

DETROIT, Oct 10, 2005; Tom Brown writing for Reuters reported that courtroom proceedings in a landmark case that could reshape the U.S. auto industry and hurt many people who depend on it for their livelihoods get under way on Tuesday.

That's when opening motions are due to be heard in U.S. Bankruptcy Court in New York on the Chapter 11 filing by auto parts supplier Delphi Corp. that rocked the American auto industry over the weekend.

With its move, Delphi -- in effect going to war with the United Auto Workers union -- announced plans to downsize domestic operations while slashing union wages and health-care benefits.

The largest U.S. parts maker also wants to free itself from pension obligations to tens of thousands of employees it inherited from General Motors Corp. when it was spun off from the automaker in 1999. Delphi argues that GM is liable for the pension obligations under terms of the spinoff.

There are many issues at stake in the case, which came to a head after talks among Delphi, the UAW and GM failed to produce agreement on a bailout plan for the struggling supplier.

Among the thorniest problems will be deciding who is responsible for post-retirement and health-care benefits that GM, which shares many of the same problems that sent Delphi into Chapter 11, has said could cost it up to $11 billion.

The broader issue, however, is whether Delphi will get a court-ordered mandate to tear up its labor contracts with the UAW and set dramatically lower wage and benefit levels for its U.S. hourly employees.

Alluding to that possibility, UAW leaders said in a statement on Saturday that it would be "an extremely bitter pill" to swallow.

"I think this case is, in fact, a watershed. I think what it does is -- in the most dramatic way we've seen to date -- it introduces the wages of the global economy into Main Street in Michigan, Ohio and elsewhere," said Harley Shaiken, a professor at the University of California-Berkeley specializing in labor issues.

"SET IN CHINA"

"Delphi has essentially said: 'We need competitive wages.' Those wages currently are being set in China, not Flint, (Michigan)," Shaiken said.

Auto industry analyst Maryann Keller said the Delphi case could change the face of Detroit and the U.S. auto industry by ending decades of UAW de facto control over wages and benefits and putting it in the hands of a bankruptcy judge.

If Delphi gets its way, every other supplier and automaker with UAW labor contracts will seek to to match the terms of Delphi's court-ordered labor agreement, Keller said.

"I don't know how any of this will be resolved except to say that, ultimately, UAW workers are going to get paid less and they're going to have fewer benefits," she said.

"It doesn't have to mean the end of the UAW. But it certainly means that the promise that somebody could have an upper-middle income compensation within the auto industry is over," she added, referring to hourly or blue-collar workers.

In court papers filed over the weekend, Delphi said it would ask a judge to void its labor contracts if it cannot reach a restructuring agreement with its unions by mid-December. The company said it plans to submit written proposed contract changes to the unions on or before Oct. 21.

Shaiken warned that the UAW remains a force to be reckoned with, however, and said the outcome of the Delphi bankruptcy was far from certain.

"Because they (Delphi) have considerable leverage at a moment of bankruptcy is not the same as saying the UAW is out of the game," Shaiken said.

Among other tactics, he said the UAW could stage potentially crippling strikes, affecting not just Delphi but the industry at large, if the union sees itself as having nothing left to lose.

"There is more than one way out of this canyon they are in right now," said Shaiken, referring to the UAW and the possibility that it could still reach a negotiated settlement with Delphi in the coming weeks.

"They're going to try to make an argument that simply cutting wages, slashing benefits, etc., is not the only way to go. Whether the bankruptcy judge buys that remains an open question."

If things do swing Delphi's way, it seems clear that even GM -- its potential courtroom adversary -- would be happy, however. Globalization could finally signal an end to what Detroit auto executives often bemoan as their onerous labor costs and "Cadillac-style" UAW benefits.

"The choice is no longer between keeping the same job or keeping the same job at a lower wage," GM Vice Chairman Bob Lutz told local radio on Monday. "The choice is now keeping the same job at less compensation or having no jobs at all in this country."

One in eight Americans depend on the auto industry directly or indirectly for their livelihoods, Shaiken said.