Delphi Rescinds Plan To Slash Union Pay

Parts Maker Says GM Now in Talks

Ronald A. Gettelfinger heads the UAW. (Tom Pidgeon - Bloomberg News)

Delphi Corp., the troubled auto parts giant, has pulled a controversial proposal to slash union workers' pay after steadfast opposition from the United Auto Workers and other labor unions.

As part of its bankruptcy reorganization, Delphi was proposing salary scales that would have paid some workers as little as $9.50 per hour, down from about $27 per hour that workers earn now. The UAW had rejected the proposal. In a statement, Delphi said it was formally withdrawing the proposal because General Motors Corp., Delphi's former parent company and largest customer, has entered the negotiations.

In addition, Delphi extended by a month the deadline to work out a deal, to Feb. 17. Depending on the outcome of the talks, Delphi said, it might return to the original proposal. If no agreement is reached by the deadline, Delphi also could begin filing motions that would lead to the nullification of the contracts with all its unions.

The UAW, which represents most of Delphi's 34,000 hourly workers, said the announcement was "a step in the right direction." In a statement, UAW President Ronald A. Gettelfinger said he hopes Delphi's announcement "results in a meaningful change in its position, but only time will tell if that is the case."

GM has a lot at stake in the negotiations. There is the threat of a debilitating strike if GM, Delphi and the unions are unable to forge a deal. Additionally, GM may be liable for as much as $11 billion in pension costs for Delphi workers who were GM employees before the spinoff. As part of the GM-Delphi separation agreement, workers received the same level of pay and benefits they were receiving before the split. Labor costs were listed as the key reason for the auto parts maker's Chapter 11 bankruptcy filing in October.

Delphi was created in 1995 as the consolidated parts division of GM. The division was spun off into a stand-alone company in 1999. The deal was supposed to allow GM executives to focus on designing, marketing and assembling vehicles. Delphi would be free to focus on making parts and pursuing contracts from other automakers. Both GM and Delphi have continued to struggle since the breakup. GM, battling its worst financial crunch in years, has lost more than $4 billion in its North American operations in 2005. The company has announced a turnaround plan to cut 30,000 jobs in an effort to streamline operations.

Delphi executives have repeatedly described the parts maker's labor costs as a competitive disadvantage. Delphi's pay structure is more generous than what other workers in the auto parts sector are paid in the United States. Additionally, Delphi is facing growing competition from other parts of the world where labor is cheap. But the UAW dismissed the original Delphi pay proposal as "McDonald's wages" and blasted it as an attack on the American middle class.

In November, the six unions representing Delphi workers and retirees formed a coalition, called Mobilizing at Delphi, to protest proposed wage and benefits cuts at the auto supplier, a sign that the company might face a strike if it presses demands for cutbacks. The coalition is made up of the United Auto Workers, International Union of Electrical Workers-Communication Workers of America, United Steelworkers, International Brotherhood of Electrical Workers, International Association of Machinists and Aerospace Workers, and International Union of Operating Engineers.

The threat of a strike has rattled investors and sent GM's stock lower. The last major UAW strike in the auto industry was a 1998 work stoppage at two GM factories in Flint, Mich. The plant shutdowns lasted 54 days and produced a ripple effect that closed GM's profitable truck and sport-utility-vehicle plants throughout North America. GM went to court to stop the strike, but it ended up costing the automaker nearly $3 billion.

In a statement, Delphi said it will continue to work toward "solutions acceptable to Delphi, and its stakeholders, as well as to the UAW, GM and other unions."