General Motors Death Watch 34: The Oracle of Delphi

Robert Farago
by Robert Farago

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.

Robert Farago
Robert Farago

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  • Lou_BC "respondents between 18 and 80 years old" Basically anyone deemed an adult who might be allowed to drive.
  • Lou_BC They will do fine if they come up with some cool sedans ;)
  • Mister They've got their work cut out for them. I live in a large metropolitan city of 1.2+ million people, the is a single Mitsubishi dealer. It's really more like a used-car dealer that sells Mitsubishi on the side. With the remarkably cheesy name of "Johnny Legends".
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  • Jeff Matt--I think this is a good move for Mitsubishi to expand their presence with satellite dealers. I had a 85 MItsubishi Mighty Max and my sister had a 83 MItsubishi Starion. MItsubishi needs to add a compact pickup to compete with the Maverick and the Santa Cruz but offer it for less. A smaller more affordable truck will sell. I believe MItsubishi should still offer an inexpensive subcompact like the Mirage it will sell in a slowing car market with high msrps. Yes I know the Mirage is probably going to be canceled but I believe in these times it is a mistake and they should reconsider cancelling the Mirage. Toyota is having problems selling the new redesigned Tacomas and Tundras with the turbo 4s and 6s. Most Tacomas have MSRPs of well over 40k. There is room for MItsubishi to grow their market share with more affordable vehicles. I am not saying Mitsubishi is going to overtake Toyota, Honda, or Nissan but they should take advantage of the more affordable market segment that these companies for the most part have abandoned. MItsubishi doesn't have to be the biggest just increase sales and become more profitable.