General Motors Death Watch 34: The Oracle of Delphi

Robert Farago
by Robert Farago
general motors death watch 34 the oracle of delphi

So Delphi is bankrupt. The automotive parts manufacturer will now use the courts to reduce their labor costs, so they can make a profit and stay in business. We're talking about trimming workers' wages from $60 per hour to $10, eliminating $400m dollars in annual payments to idled employees, slicing pensions, closing a couple of dozen factories, that sort of thing. Considering the union's complete intransigence on these issues, Delphi's move into Chapter 11 is entirely sensible. From GM's point of view, Delphi has let slip the dogs of war; dogs that will rip The General to pieces.

Yesterday, we learned the true cost of GM's Delphi-related pension obligations: eleven billion dollars. The figure makes The General's $2b FIAT payoff seem like a tip. It makes the $2.4b GM has burned through this year seem like an ink stain on the corporate ledger. It makes the $800m pissed away in the Fuji deal seem like change lost down the back of the sofa. Of course, pensions are paid out over time, and The General's lawyers are busy preparing to argue that GM doesn't owe Delphi a dime. But they do, and the hit will hurt.

Never mind. When push comes to shove, GM has enough family silver to cover its Delphi-related pension problems. Insiders estimate that the General has about $40b in cash and $50b in credit left. No, the real problem with Delphi's deconstruction is this: the parts maker's bankruptcy will eventually force GM to shut down its assembly lines.

In mid-December, after two months of fruitless negotiation, a federal judge will terminate the UAW's contract with Delphi. The union will strike. They have to. They cannot allow a judge to eviscerate every wage increase, working condition and benefit they fought for since 1935. For one thing, the rank and file won't tolerate anything but a symbolic roll-back in their standard of living. For another, any cut inflicted upon Delphi's 25,000 union members would form the basis of the UAW's new contracts with GM, Ford, Chrysler, etc. That's… inconceivable.

Bottom line: unions are in the business of protecting and enlarging workers' rights, not overseeing their elimination. The UAW's continued existence demands that they draw a line in the sand– which Delphi's management has already crossed, and will cross again, as and when. Although Delphi lost the opening round of the predictable (and pointless) post-Chapter 11 blame game by giving its top brass a pay raise moments before the company filed, there's no escaping the fact that you can't structure an auto parts business in today's highly competitive market using the UAW's current level of compensation.

The inevitable UAW strike will starve GM of parts and force them to shutter US factories. Lest we forget, Delphi WAS GM until '99. Every single vehicle The General makes still needs every single part Delphi makes for it. There is no way GM can build its products without all of its Delphi-produced components. The UAW knows this, and they've got nothing to lose. What's more, they believe a strike will force Delphi, GM and all the rest to get in line, or, as Ron Gettelfinger recently remarked, "we all go down together".

For its part, GM is engaged in some major league damage limitation/distancing/ denial. The General's official response to Delphi's Chapter 11 points out that they've been paying a $2b annual "premium" for Delphi parts. Their supplier's bankruptcy will save them money! Never mind that the savings are entirely theoretical; YOU try and plug a new supplier into GM's Byzantine production matrix. And anyway, a part's price is secondary to its existence: if you can't get one, it's literally priceless.

The UAW's Delphi strike will costs GM billions. Per month. By now, there's nothing GM can do to forestall this eventuality. Rabid Rick Wagoner was right not to pay Delphi blood money to keep the [union] peace. It would have shown weakness to GM's mortal enemy, drained yet more billions from the company's coffers and postponed the inevitable. In fact, all GM can do now is prepare for the coming disruption, and devise a strategy that would allow it to "pull a Delphi" and walk away from its union contracts. Something like… bankruptcy.

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  • Tassos What was the last time we had any good news from Ford? (or GM for that matter?)The last one was probably when Alan Mulally was CEO. Were you even born back then?Fields was a total disaster, then they go hire this clown from Toyota's PR department, the current Ford CEO, Fart-ley or something.He claims to be an auto enthusiast too (unlike Mary Barra who is even worse, but of course always forgiven, as she is the proud owner of a set of female genitals.
  • Tassos I know some would want to own a collectible Mustang. (sure as hell not me. This crappy 'secretary's car' (that was exactly its intended buying demo) was as sophisticated (transl. : CRUDE) as the FLintstone's mobile. Solid Real Axle? Are you effing kidding me?There is a huge number of these around, so they are neither expensive nor valuable.WHen it came out, it was $2,000 or so new. A colleague bought a recent one with the stupid Ecoboost which also promised good fuel economy. He drives a hard bargain and spends time shopping and I remember he paid $37k ( the fool only bought domestic crap, but luckily he is good with his hands and can fix lots of stuff on them).He told me that the alleged fuel economy is obtained only if you drive it like a VERY old lady. WHich defeats the purpose, of course, you might as well buy a used Toyota Yaris (not even a Corolla).
  • MRF 95 T-Bird Back when the Corolla consisted of a wide range of body styles. This wagon, both four door and two door sedans, a shooting brake like three door hatch as well as a sports coupe hatchback. All of which were on the popular cars on the road where I resided.
  • Wjtinfwb Jeez... I've got 3 Ford's and have been a defender due to my overall good experiences but this is getting hard to defend. Thinking the product durability testing that used to take months to rack up 100k miles or more is being replaced with computer simulations that just aren't causing these real-world issues to pop up. More time at the proving ground please...
  • Wjtinfwb Looks like Mazda put more effort into sprucing up a moribund product than Chevy did with the soon to be euthanized '24 Camaro.