Delphi Corp.’s bankruptcy could change the face of the US automotive industry, raising pressure to produce cheaper parts overseas and forcing unprecedented cuts in union wages and benefits, industry analysts and industry workers told the Associated Press.
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Delphi filed for bankruptcy on Saturday and is expected to slash jobs and wages and close many of its 31 US plants as part of its reorganisation, the news agency noted, adding that General Motors, Delphi’s largest customer and former parent, said it might have to assume up to $US11 billion in retirement benefits for Delphi’s union-represented employees.
AP noted that Delphi has 500 suppliers of its own who are waiting to see what kind of labour agreement Delphi negotiates with the United Auto Workers – when a leaner Delphi emerges from bankruptcy, expected in 2007, its suppliers could face added pressure to lower their own costs through wage cuts or increased use of overseas labour.
“There’s a great deal of concern among auto suppliers about whether they can remain profitable or survive with union contracts,” Jim Gillette, a supplier analyst with CSM Worldwide, told the Associated Press, adding: “If Delphi’s willing to force renegotiation through a bankruptcy filing, I suspect other suppliers would do the same.”
AP added that the bankruptcy of Delphi’s, which employs 50,000, is one of the largest in US history.
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By GlobalDataThe report said that union members also are watching closely – workers at other suppliers are concerned their employers will match any changes to chose negotiated by Delphi. Some already have a two-tier wage agreement with unions that allows newer employees to be paid 50% or more less than workers taken on in more prosperous times.
The Associated Press noted that UAW leaders in Indiana last week warned workers that Delphi wants to cut hourly wages from $US27 to $10-$12, cut holidays [and the US government only mandates two weeks a year as it is] and make workers part-pay more for their own health care – the letter reportedly warned that cuts under a bankruptcy judge could be even worse.
The chairman of the Centre for Automotive Research, David Cole, told AP the UAW will have to move from a confrontational mode to one of collaboration if it’s going to survive and added that Delphi’s bankruptcy will result in wages being set by the market, not by bargaining.
“The Delphi bankruptcy is a real watershed point for the UAW,” Cole reportedly said, adding: “The UAW is virtually powerless now.”
A restructuring expert representing Delphi suppliers in the bankruptcy proceedings, James McTevia, told the Associated Press that Delphi could set a new model for the entire industry by scaling back its hourly work force and its US manufacturing capacity and giving lower wages and benefits to the workers that remain.
Such a change is badly needed, McTevia reportedly said. According to AP, he added that vehicles and their parts will always be made in the United States for local customers but the country needs less capacity than at present while companies need to increase their presence in emerging markets such as Asia.
“North America, Michigan and Detroit are no longer going to be the auto capitals of the world. The auto capital of the world is going global,” McTevia told the Associated Press.
CSM Worldwide’s Gillette told the news agency he still saw a future for automotive suppliers in the US, noting that Japanese, German and Korean car makers are moving parts operations there to supply US plants and, though they may not be ‘unionised’ they often match union wages.
Suppliers who produce parts that require a high level of skill and training, such as precision pieces for fuel injectors, also face less competitive pressure from overseas, he told AP.
“We do have a competitive advantage in very complex, precision components for the automobile,” he said, according to the Associated Press.
