The mid-October decision by Delphi Corp. to seek Chapter 11 bankruptcy protection and massive labor givebacks, followed by General Motors’ effort to open its contract with the United Auto Workers (UAW) for other concessions, are watershed events in American labor and economic history. They announce the final shredding of any social contract in industrial relations and drive a long nail into the coffin of our employer-based welfare state. Unless addressed, they promise economic disaster not just for hundreds of thousands of auto workers but much of the American middle class.
While social democracies in Europe and elsewhere built a “social wage” in the postwar years–benefits and guarantees like retirement income, health insurance, childcare supports and training available to all citizens–the United States built a private benefits system, rooted in particular employer contracts. This private system is grossly inefficient as well as inequitable, and it reduces competitiveness with firms operating in more rational systems. Now Big Auto, so crucial in building that system, proposes to dump it without offering an alternative that satisfies health and retirement needs.
Delphi’s move could have been predicted from its recent hire of Steve Miller as CEO. He has made a long career, going back to the Chrysler bailout of a generation ago, of using government handouts and corporate welfare in the form of bankruptcy to restructure firms while looting workers’ assets. Just before he joined Delphi, Miller was CEO of Bethlehem Steel and a board member at United Airlines (UAL). Before selling off Bethlehem he eliminated health insurance for 95,000 retirees and offloaded the firm’s underfunded pension obligations to the government’s Pension Benefit Guaranty Corporation. And he offloaded UAL’s even larger underfunded pension to the PBGC, itself now underfunded. At the time, Forbes announced that this spectacular disappearance of worker savings foretold “the end of pensions”–not just for UAL but the country. It has since been imitated by Delta and Northwest. Miller took the job at Delphi because he thought it offered a “pivotal position to impact the restructuring of America’s auto industry,” meaning more of the same.
Miller’s plan for Delphi is cynical and wildly greedy. The bankruptcy is targeted only at Delphi’s 51,000 US-based workers, less than a third of its worldwide labor force. It is well financed, with Delphi holding $1.6 billion in cash and a new credit line for as much as $4.5 billion in low-interest debt from Citigroup Global Markets Inc. and JP Morgan Chase. Nothing in US bankruptcy law–recently tightened for individuals but not for corporations–says a company actually has to be broke to enjoy its protections. And Delphi is not broke; of its forty-five US plants, only eleven are in a separate holding group of financially troubled enterprises.
As the price of not canceling the workers’ contract and liquidating their pension, Miller is demanding a drop in average wages from $27 to $10 an hour, concessions that would total more than $2 billion a year. This is about 25 percent more than Delphi’s current losses, counting the money-losing plants, and will be pure profit once those are eliminated.