GM Still Pays the Price For Get-Tough Tactics in '90s

Those in the business of selling everything from brakes to bumpers can just about pinpoint when their already tense relationship with U.S. automakers began showing signs of extreme strain: 1992.

That's the year General Motors Corp. lost $23 billion, initiated a shake-up in its corporate ranks and named the penny-pinching J. Ignacio Lopez de Arriortua as chief of purchasing. The hard-nosed negotiator called his subordinates "warriors" and made them wear their watches on their right wrists, a reminder of the changing times.

"That's when General Motors started playing hardball with suppliers," said Neil DeKoker, president of the Original Equipment Suppliers Association. "Most of the other automakers followed suit, and that's when the constant cost-cutting demands became entrenched."

Another turning point came in 1999, when GM decided to focus on building cars and spun off Delphi Corp., its parts division, which became the nation's largest auto parts supplier with 33,000 unionized hourly workers in the United States.

Today, the companies are still feeling the effects of that decade.

Delphi filed for Chapter 11 bankruptcy protection in October, citing the high labor costs it inherited from the union contracts negotiated by GM. Since then it has been pressing the unions to accept deep wage and benefits cuts. But when the unions rejected its latest offer, Delphi yesterday asked a bankruptcy court judge to void the labor contracts. Now the unions are threatening to strike, a move that could cripple production lines at GM, the world's largest auto maker.

The relationship between GM and Delphi "reminds of me of something Keith Richards said of his relationship with Mick Jagger: 'It's a marriage made in hell, and neither one of us can get out of it,' " said Robert Chiaravalli, a labor lawyer and principal at the consulting firm Strategic Labor and Human Resources.

GM is Delphi's largest customer, generating more than half of Delphi's annual sales. But since the spinoff, each company argues it's been dragged down by the troubles of the other, said Kevin Tynan, a senior equity analyst at New York-based Argus Research.

"The way Delphi sees it, it never had a chance to be competitive," Tynan said. "In Delphi's eyes, GM let them go bankrupt."

Meanwhile, GM considers it's done its part to ensure Delphi's financial health, granting the supplier a sweetheart deal on prices, said Jim Gillette, director of supplier analysis at consulting firm CSM Worldwide.

" GM contends they have been paying above-market pricing to Delphi for a number of years to keep Delphi in business," Gillette said.

But yesterday, Delphi asked the court to rework "current unprofitable supply contracts" with GM. "We simply can't continue selling our products at a loss," Steve Miller, Delphi's chief executive, said in a written statement.