Auto-parts giant Delphi Corp. said in the first day of its bankruptcy hearings that it wanted to consolidate a "substantial" number of its U.S. facilities and to renegotiate agreements with its unions to "fundamentally transform the company."
"We need help. We need the ability to change the amount we are paying," John Butler, an attorney from Skadden, Arps, Slate, Meagher & Flom LLP, the law firm representing Delphi, said in court.
Butler said Delphi will seek to negotiate cuts in labor costs outside the bankruptcy courtroom, at least for now. He sought a timetable from the judge to quickly bring those issues into court if the talks break down. The Delphi request, which was opposed by union lawyers, could put pressure on labor to come to the bargaining table.
Butler said in court that Delphi was seeking more than "short-term changes." The company's ambition for a fundamental transformation could mark a turning point in the relationship between the auto industry and organized labor, union officials and labor experts say.
Companies in the steel industry and in airlines have already gone before bankruptcy court judges to wrest concessions in pay, benefits and job protections from unions. Auto giants have historically negotiated with the unions for cuts during difficult periods in the industry.
"It's almost the last battle for organized labor," said Charles Craver, a professor of labor and employment law at George Washington University. "What you see now in many industries is the success of labor over the last 30 years now coming home to haunt them."
Before the bankruptcy filing, Delphi had demanded reductions in worker pay and sought to ease the union's grip on decisions to close or consolidate factories. The union has balked at the demands, which included a 50 percent wage cut.
General Motors Corp., which split off Delphi as a stand-alone parts company in 1999, is in negotiations with the United Auto Workers union for concessions on labor costs. The UAW has not budged in talks with GM, either. Last month, Ford Motor Co. stepped in to bail out Visteon Corp., its former parts-making subsidiary.
Delphi said it filed for bankruptcy protection because it was running out of options as a slowdown in production at GM compounded its difficulty in containing labor costs. When a factory is idled or closed, Delphi and the other Detroit-based auto companies have to pay union workers nearly at the same level as if the plant were fully operating. Delphi, which makes an assortment of automotive parts, has struggled to make a profit since leaving GM. It lost $4.75 billion in 2004.
Delphi, the nation's largest auto-parts manufacturer, operates 31 plants in 13 states. It has 185,000 workers worldwide, with 32,000 union workers in the United States -- 24,000 of them represented by the UAW. According to the UAW, Delphi was insisting on wages of $10 to $12 per hour, as well as cuts to pension benefits and health care and job protections. Delphi also demanded the ability to close, consolidate or sell factories without the union's consent. Workers at Delphi plants make about $27 per hour in wages alone. With health care and other benefits added in, Delphi workers' compensation amounts to about $65 per hour.
Over decades of bargaining, the UAW has managed to wrest some of the world's best labor deals in the manufacturing sector for workers at GM, Ford and the former Chrysler Corp., now a division of Germany's DaimlerChrysler AG. As global automotive competition has increased, these companies have been unable scale back labor costs as much as they've wanted because of the UAW, one of the country's strongest unions. Over the weekend, UAW President Ron Gettelfinger called the Delphi bankruptcy an "extremely bitter pill" to swallow. UAW attorneys from New York law firm Cohen, Weiss & Simon LLP monitored yesterday's bankruptcy hearings.
Richard Bank, director for the center for industry strategies at the AFL-CIO, which includes the UAW, said the autoworkers now have to fight the same battles as workers in the airline and steel industries.
"What's obvious here is there is now a template for industries that want to break the promises that they've made -- and that's go into bankruptcy," Bank said. "This is a follow on to what's happened in steel, and it's a follow on to what's happened in airlines, and it's totally unfair."
Craver and other labor professors said a lot has changed since the '50s, '60s and '70s, when companies could afford generous wages and benefits for union workers. Airlines have been deregulated. In the auto industry, he said, the "monopoly of power" that the UAW once wielded has eroded. Global competition has ratcheted up substantially. Autos and auto parts are being built in Mexico, China and other countries, where labor costs are cheap. In 1955, unions represented 35 percent of private-sector workers. At the end of 2004, unions represented 7.9 percent of those workers.
Furthermore, foreign auto companies, including Toyota Motor Corp., Honda Motor Co., Nissan Motor Co., BMW AG and Hyundai Motor Co., now have U.S. factories. They have generally put down roots in Southern states where jobs are scarce. Because the factories are new, they do not have the burdens of pension and health care costs that bedevil the American auto companies. The UAW has not had much success in bringing these workers into the union.
In court yesterday, Delphi won approval to borrow as much as $950 million from banks to pay employees and suppliers while in bankruptcy protection. Delphi said before the hearing that it had lined up as much as $4.5 billion in loans that still need court approval.
GM, Ford and DaimlerChrysler will be closely watching the outcome of the Delphi bankruptcy case. Harley Shaiken, a labor professor at the University of California at Berkeley, said that GM and the other big U.S. auto companies are not likely to turn to bankruptcy any time soon but that Delphi's decision to go to court shows "there is a barrier that's been broken here."
Chrysler was the last major U.S. automaker to come close to bankruptcy. At the end of the 1970s, the automaker struggled with major cash-flow problems, a line of cars that wasn't selling well and high labor costs. The U.S. government stepped in with $1.2 billion in loan guarantees, which the company repaid in four years. "The argument was made that this would be so disastrous for the 100,000 Chrysler employees, their families and their communities. Bankruptcy was not an option," Shaiken said. With Delphi, he said, there hasn't been a murmur of the government stepping in. "It shows how far we've come politically," he said. "There are so many fewer moral barriers to a bankruptcy of this scale."
Steve Miller is chief executive of Delphi, which is asking for substantial worker concessions.
Its workers union said Troy, Mich.-based Delphi wanted cuts in wages, pensions, health benefits and job protections.