AUTO PARTS

Will showdown at Delphi mean end of the American Dream?

New CEO wants to slash hourly wages

TOM BROWN

Reuters News Agency

October 17, 2005

DETROIT -- At first glance, the showdown between turnaround specialist Steve Miller and organized labour would seem to be good news for the U.S. auto industry.

But for auto workers, will it mean the end of the American dream?

The hard-charging Mr. Miller, who took over as chief executive officer at giant U.S. auto parts maker Delphi Corp. in July, and steered it into Chapter 11 bankruptcy protection on Oct. 8, wants steep wage and benefit concessions from the United Auto Workers and other unions as part of its reorganization.

If he gets what he wants, it could open the door to dramatic cuts in pay and benefits for UAW-protected hourly workers at General Motors Corp. and Ford Motor Co., giving Detroit's distressed auto makers sorely needed labour-cost relief.

At the very least, Troy, Mich.-based Delphi could exert strong influence on the UAW's negotiations with GM, Ford and the U.S. arm of Germany's DaimlerChrysler AG, when new labour contracts are hammered out in 2007.

"More than anything, it tells the UAW that their bargaining power is gone," said David Cole, who heads the Center for Automotive Research in Ann Arbor, Mich. "The market is defining wages and benefits of the future, and the best they can hope for is to work collaboratively with the companies to survive."

By indicating he wants to slash UAW wages of $27.50 (U.S.) to as little as $10 an hour, Mr. Miller is asking for a fight, and UAW leaders have already warned that he may face a potentially crippling strike.

In Detroit, where working-class Americans have long been able to lift themselves into the middle-class through well-paid jobs in the auto industry, he also risks becoming Public Enemy No. 1.

Until now the UAW, which is Delphi's largest union, has enjoyed wages and benefits that are the gold standard of industrial America even as other unions, including the Teamsters and United Steelworkers, suffered serious setbacks.

But with Mr. Miller, who took Bethlehem Steel Corp. into bankruptcy protection in 2001, the good times may finally be over.

In remarks last week, which angered the UAW's leaders, Mr. Miller said globalization had swept over the workers in Delphi's factories, effectively ending their pursuit of "the Great American Dream."

His trump card lies in the fact that he could quickly start selling off Delphi's assets. Apart from job losses, shortages of key components could have an industry-wide impact. GM, former parent of the top U.S. parts supplier, is its biggest customer and most vulnerable.

"If we do all this right, Delphi will remain one of the world's leading global automotive suppliers," Mr. Miller said. "But if we do it badly, Delphi may be broken up into small pieces. The impact of the collapse could potentially injure most of the world's auto makers, and perhaps fatally wound General Motors."

Henry Ford was credited with a stroke of genius by creating a whole new group of consumers for his company's products back in 1914. Ford doubled the pay of his workers, saying he wanted them to make enough to buy the Model Ts they built. But 91 years later, Delphi workers could soon find a new car, built with the parts they produce, totally out of their reach.

"This is a total reversal of Henry Ford's landmark insight," said research fellow Alan Tonelson at the U.S. Business and Industry Council. He attributes many of the industry's problems to bad U.S. trade policy, outsourcing and globalization, not U.S. labour costs.

"You have these U.S. parts companies and the U.S. auto makers themselves trapped in this cost-cutting spiral which winds up driving down the wages of many of the customers that they're relying on to buy their products," he said.

"The bottom line that Delphi and companies like it seem to be serving up is that it is not possible to manufacture sophisticated products in the United States while paying First World costs. But that is not an acceptable message for this country," he said.

"Whether it be in the trade union movement or the captains of industry, the vision that we have for America ought to be for a better America," said Richard Shoemaker, the UAW vice-president responsible for contract negotiations with both GM and Delphi.

"It ought to be a vision of how we make life better for those people that live here, not a vision for dismantling the manufacturing base and taking the quality of life that we've known and enjoyed down to that of a Third World country," Mr. Shoemaker said.

The UAW's membership has fallen by about half from a peak of 1.5 million in the 1970s as the number of well-paid, unskilled manufacturing jobs fell across the United States.