General Motors Death Watch 135: A Whimper, Not a Bang

Robert Farago
by Robert Farago
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general motors death watch 135 a whimper not a bang

Let’s keep things in perspective. Delphi has been in bankruptcy since October 8, 2005. As in "we need protection from our creditors and a new way to do business or we’ll have to throw all our workers onto the streets." Since the former GM subsidiary filed for Chapter 11, the company has lost billions of dollars. To view Delphi's deal with the UAW as a demonstration of the union’s ability to “accept reality” is like suggesting that a doctor looking at a patient with multiple bullet wounds should be praised for thinking a bit of surgery might be in order.

As Frank Williams pointed-out previously, the union has already drained huge amounts of blood money (GM’s) from Delphi’s wounded body. By the time yesterday’s UAW contract vote rolled around, 8k of Delphi’s 25k UAW workers had already been bought out (with General Motors’ money). Of the 17k remaining members, 4k more get a buyout and/or buy down program (financed by General Motors). The rest exchanged job security for pay and benefits cuts.

Well, not exactly. The agreement allows Delphi to close or sell 21 of its 29 U.S. factories. While there are lay-off payments (up to $40k) and “flow back” provisions for workers whose plants are history, a great number of Delphi’s union members will be SOL. And while the words “pay cut” may be music to Detroit execs’ ears, it’s actually more like a glass ceiling; the majority of Delphi’s current UAW members already work at the lower wage rate.

In short, the UAW arranged a pay-off for 4k GM-era members, maintained the status quo on pay for the remaining workers and “allowed” Delphi to downsize its U.S. operations by around 80 percent.

Ah, but does this set a pattern bargaining precedent for the UAW’s upcoming negotiations with GM? Does the Delphi agreement reflect a “new era” in labor negotiations that will allow General Motors to reduce its wage costs to parity with Toyota and transplants and, thus, turn its business around? Nope.

Again, Delphi is a bankrupt company hemorrhaging money. GM is a going concern, albeit one that’s hemorrhaging money. In fact, the new Delphi – UAW contract will cost The General $7b (for pension and retiree health care expenses), a one-time $500m payment (when Delphi emerges from bankruptcy protection) and annual payments of $400m to $500m after that (for an “undetermined number of years").

[GM says a forthcoming $2b reduction in their Delphi-related parts bill cancels out the cost of the annual payments. That remains to be seen.]

Anyway, when it comes to their upcoming contract with GM, the UAW will abide by the same principle that informed the Delphi deal (and every other deal they’ve ever made): get as much money as possible for their members. Nothing wrong with that. But you can't ignore the fact that the union was perfectly happy to let/watch Delphi fall into Chapter 11 before [eventually] agreeing to this week’s contract.

I know, I know: management. Even so it’s not credible to think the UAW will cut a similar deal with GM to prevent the automaker from tipping into bankruptcy. Even though The General’s mortgaged up to its eyeballs and burning through cash, the company’s ability to stay in business is proof that it can afford its UAW contracts. You know; if you see it that way.

Of course, the "you" in question here are GM’s UAW workers. While Delphi’s UAW workers had over two years of doom and gloom in which to contemplate a jobless future (and then four days to forestall it), GM’s UAW workers see signs of life everywhere.

GM’s foreign subsidiaries are going great guns. There’s a whole bunch of shiny new products on the showroom floor. Five hundred engineers are working on fuel cells. CEO Rabid Rick Wagoner, Car Czar Maximum Bob Lutz and the rest of The General’s high-flying management team are still swanning around in their Gulfstream jets, banking millions in bonuses and stock options. General Motors’ stock price is now sky high. And just this week, GM sold its Allison Transmission unit to a pair of buyout firms for $5.6b.

And they want me to work for $14 an hour?

UAW boss Ron Gettelfinger is no dope. He’s looked at GM’s books. He knows what’s really going down (market share, for one, margins for another). But at the end of the proverbial day, GM’s UAW workers must agree to cutbacks, givebacks, buyouts or layoffs. At Delphi, they were already in the shit, convinced they faced a choice between nothing (chapter 7), a little more than nothing (Delphi’s original offer) and something (the final deal). Similar concessions from GM’s workers are not likely.

Until GM goes bankrupt. When GM files for Chapter 11, its workforce will finally start coming ‘round to the idea that it's time to give back what they already enjoy. Until then, why would they?

Robert Farago
Robert Farago

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  • Pch101 Pch101 on Jul 03, 2007
    IMHO, there are two gentlemen, both capable of turning things around, who might be brought in to shake up the General: Mr. Sergio Marchionne of Fiat, or Carlos Ghosn of Renault / Nissan… I'm sure that everyone reading this site knows that Kirk Kerkorian tried unsuccesfully to bring Ghosn into GM. As expected, Wagoner danced the dance and killed the deal. I think that we have to accept that at least in the case of GM, the present leadership is determined to stay put. For the good of the company, the GM "leadership" should be handing over the reins to new people who know how to lead turnarounds, but as we can see from Wagoner's stand against Kerkorian's velvet coup attempt, they won't budge unless they're shoved out.
  • Jolo Jolo on Jul 03, 2007

    GM is probably waiting for Delphi to come out of bankruptcy so they can hire Steve Miller just in time for the union negotiations...

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