Now that Delphi ( DPHIQ) has found some common ground with organized labor, the bankrupt auto-parts supplier is mounting a last-ditch effort to cut wages for its hourly workers and avoid a devastating strike. With the help of General Motors ( GM), its former parent, Delphi struck a deal last week with the United Auto Workers union to offer
buyout packages to thousands of workers in return for early retirement. The agreement marked a step forward in Delphi's attempt to lower its labor costs, but it didn't address the cornerstone of its proposed restructuring, which involves lowering hourly wages. Delphi spokesman Lindsey Williams said Monday that the company submitted a comprehensive proposal to the UAW that includes wage cuts and other measures. He declined to provide any more details. The Detroit News, citing sources familiar with the proposal, reported that the offer calls for hourly wages to be cut to $22 from $27 per hour and then gradually be reduced to $16 per hour. A spokesman for the UAW could not immediately be reached for comment. If the report is accurate, the proposal appears to mark a softening on the part of Delphi, whose chairman and chief executive, Robert Miller, previously called for a 60% reduction in wages for hourly workers. Delphi, which filed for bankruptcy in October, contends that it must shed a portion of its labor costs, since its current cost structure crimps its ability to compete in a global economy. The UAW has opposed wage cuts, threatening a strike in the event that Delphi asks a bankruptcy judge to cancel its union contracts. A strike would cripple Delphi, along with GM, which depends on the company as its largest supplier of parts. Given the multitude of GM's financial and competitive problems, such an event could wipe out the automaker's cash cushion and force one of the largest issuers of corporate debt in the world into a bankruptcy of its own.
Brett Smith, an industry analyst with the Center for Automotive Research, says Miller's original stance on wages was a negotiating tactic intended to communicate the seriousness of Delphi's problems. Some middle ground was expected, and Smith says this latest proposal represents that compromise. He sees a good possibility that the UAW will ultimately accept the proposal. "All
the UAW has to do is look around at the average manufacturing wage for the competitive auto sector, and they'll see that the current wages being paid at Delphi are way overpriced," says Smith. "Still, there are a lot of politics playing out now at the union, and there's no telling how those politics will play out." GM posted a loss of $10.6 billion for 2005, and it's planning a restructuring of its North American operations that will eliminate 30,000 jobs and idle a number of manufacturing plants by 2008. It's locked in negotiations of its own with the UAW in order to lower its labor costs. The automaker's current contract with the union expires next year. Delphi said it wants to reach an agreement with the UAW on lowering wages and benefits by March 31. Otherwise, it will ask a judge for permission to impose changes, which could then trigger a walkout. As part of the agreement announced last week, the company said as many as 13,000 workers will be offered a lump-sum payment of $35,000 to retire or leave. GM, which has said it will be liable for anywhere between $5.5 billion and $12 billion in costs related to Delphi's bankruptcy, agreed to shoulder the payments. The deal also allows up to 5,000 Delphi workers to return to GM through September 2007. Shares of GM were recently up 24 cents, or 1%, to $22.89.