Delphic Dilemma: The United Auto Workers Opt for a Two-Tier Future

Late last week, the United Auto Workers union (UAW) and Delphi signed a tentative contract. Even though the two sides spent 21 months wrangling over the deal, Delphi's remaining UAW workers have only a few days to ratify the agreement. To make sure they do, the UAW has dispatched "national leaders" to perform the requisite "sales job" on Delphi's denizens. Once again, as always, the union expects their membership to do as they're told. Only this time it may not work.

Delphi separated from GM in '99. The newly-independent parts maker inherited a hefty UAW-negotiated wage structure and 4K laid-off employees (drawing full pay in the "jobs bank"). When Delphi filed for bankruptcy in October 2005, the company had 185K workers on their payroll. Of these, roughly 25K were UAW members, averaging about $27 per hour plus benefits. The new management team wanted to kill the jobs bank, cut union wages by more than half and trim benefits.

Bankruptcy or no, the UAW wasn't having it. They threatened an industry-killing strike. Delphi responded by threatening to void the UAW's contracts in federal court. GM and Judge Robert Drain weren't having that. Negotiations dragged on, and on, and on.

Meanwhile, GM shifted away from Delphi as a supplier. Both companies used the interregnum to radically downsize their union workforce (with GM's cash), move production overseas and pay their executives large bonuses (despite ongoing losses) for their amazing management skills.

Cerberus then made a play to buy the smaller, more Eurocentric Delphi. The UAW balked at a deal that was worse than their current setup, but better than Delphi's demand. When Cerberus pulled out and bought Chrysler, GM finally stepped in and cut a deal that will cost them around seven of their borrowed billions, and just under a billion per year thereafter. The UAW left singing GM's praises but viewing Delphi CEO Steve Miller as the demon spawn of Satan.

Under the agreement, Delphi will cut all wages to the new-hire rate, about $14 to $18 per hour. Employees with seniority will receive $35K cash annually for three years to "make up" the difference. All workers' health benefits will change to match those of new hires, with higher out-of-pocket expenses. (Needless to say, nothing was said about decreasing union dues for workers experiencing pay cuts.)

The contract also calls for [more] drastic downsizing. Some 4k of Delphi's remaining 17k employees will be offered buyout payments ranging from $70k to $140K (depending on their seniority). Delphi will close up to ten plants, give three to GM (or a third party designated by GM), sell four and keep four.

Delphi's UAW members will now vote on the contract tomorrow (Thursday). It is NOT a lock. According to the Detroit Free Press, the mood at union meetings held at Delphi plants on Monday "ranged from relief to frustration." In fact, it may be less of a "range" and more of a "transition."

Initially, many union workers are happy they've still got jobs. The old union-bashing tool– accept our offer or we'll close this plant, move overseas and leave you without work–was in full force during the negotiations. Now that the plant issue has been resolved, the workers who've been spared obsolescence will breathe a sigh of relief, have a look at the fine print and say WTF?

For example, the $105K three-year "top up" offered to senior UAW members to compensate for the wage cut is really just a forced landing for GM-era members working at full pay. It also means those 4k higher-paying Delphi jobs are headed for extinction. Which leaves 13k [lower paid] newbies bumping up against a glass ceiling; these union members will NEVER earn the wages and benefits enjoyed by their elder colleagues.

Back when there were 45k UAW members at Delphi, it's highly unlikely this contract would have been ratified. The UAW– and by extension GM and Delphi– is counting on the malleability of a smaller, psychologically-weakened workforce: the "temps." By offering this majority job security, they hope to overwhelm the GM-era workers, who are looking at three more years of their current compensation before taking a 40 percent cut in their wages.

But the size of the remaining workforce cuts both ways; it makes it easier for a relatively small group of determined union organizers to mount a campaign against the agreement. The union knows this; hence the 21 month negotiation vs. four-day deliberation schedule. The UAW "Soldiers of Solidarity" splinter group– which published the contract on the Internet (thanks guys)– better watch their backs.

Anyway, why would the UAW agree to this kind of two-tier contract?

You could argue that the strategy reflects a new realism from the UAW bosses. It provides the union with an exit strategy from the gold-plated wage and health care deals that threaten their host's survival– without alienating their longtime, hardcore members.

Yes but– playing it down the middle is a risky strategy. If this blows up, all bets on the future of the American auto industry are off.