A Massive Crisis in Auto: Delphi, GM, the UAW, and Soldiers of Solidarity

Against the Current, No. 120, January/February 2006

Dianne Feeley

ON DECEMBER 19, facing a strike threat and pressure from GM, Delphi Corporation backed away from its “final offer” to the United Auto Workers, pushing the deadline back to the end of February. With the demand for a 63% wage cut off the table, complicated horse trading will ensue—but what’s clear is that rank-and-file anger and mobilization makes a big difference.

Two weeks before Christmas, a rank-and-file meeting of 200 autoworkers in Flint, Michigan voted to name themselves “Soldiers of Solidarity.” The Detroit Free Press headline the following day announced their plans to demonstrate at Detroit’s auto show in early January and picket Delphi Corporation headquarters later in the month.  Flint was the birthplace of the UAW, and GM and Delphi would like to have it die there, one woman remarked.  She—and all the others in the room—were determined to resist. A retired electrician said he’d come to the meeting after his 92-year-old father, one of the handful of sitdowners still alive, asked him what he had been doing to help the Delphi workers.

Since Delphi Corporation, the largest U.S. auto parts manufacturer, rushed to declare bankruptcy October 8, a week before the new law went into effect, auto workers have been making plans. In addition to the Flint meeting, there have been rank-and-file meetings in the Grand Rapids and Bay City, Michigan, Kokomo, Indiana and St. Louis, Missouri areas.

Delphi’s opening demand to the UAW included a wage cut from $27 an hour to $9, having workers pay more for health insurance, reducing vacation benefits and allowing the corporation to shut down plants at will.  Delphi plans to slim down its U.S. work force by two-thirds, to roughly 10,000. Its initial offer had a December 15 deadline. Beyond that date, Delphi threatened, the union might find the bankruptcy judge willing to impose a draconian settlement.

In reviewing their options Delphi workers began to consider “work to rule,” a strategy that had been successfully employed in the late 1980s. Under work to rule, the worker follows instructions to the letter and doesn’t use shortcuts or common sense. The press even quoted UAW President Ron Gettelfinger as saying work to rule was a “good idea.” Delphi CEO Steve Miller immediately responded by playing hardball: “Any plant that wants to be at the top of our plant closure list should engage in industrial action as a way of sending that message.”

An announcement for the rank-and-file meetings stated: “There is no answer that fits all locations. We don’t assume to know what the right answer is, but together we can determine the best course of action for our locations and our circumstances. Together, we can fight and win.”

At all the meetings shop-floor activities have been discussed, including work to rule. In some plants there is a solidarity committee that helps spread the information. At the last meeting a woman explained how production and skilled trades workers can band together to implement the strategy. Another Flint area worker made the point that work to rule shouldn’t be just a tactic, but a way of life. “When a younger worker comes to learn my job, I teach them Union 101.”

The meetings have also raised the possibility of a strike, debating under what conditions it could be best conducted. People remember how, in 1998, two parts plants halted GM’s assembly plants across North America, costing the corporation an estimated $2.2 billion. A strike at strategic parts plants could cripple GM within two days.

Production and skilled trade workers from General Motors, Ford and Daimler Chrysler—as well as retirees and workers from joint venture and auto parts plants—have attended the meetings.  Everyone understands that whatever Delphi can get away with will become what other corporations demand. And when workers from other industries attend the meetings and express their solidarity, they have been warmly welcomed.

The Delphi Spinoff Outsourcing is one strategy the Big Three employed to stave off the underlying problem of overcapacity. Following Chrysler’s lead a decade earlier, GM spun off American Axle in 1994 and Delphi in 1999 with Ford spinning off Visteon in 2000. Because they could see the writing on the wall, auto workers opposed GM’s sale of American Axle and Delphi and demonstrated in front of GM’s headquarters. But the UAW went along, declaring at that time the need to cooperate with management and stating it would not allow conditions in the parts plants to deteriorate.

Having trimmed their work forces by spinning off their parts division, the Big Three place enormous demands on their various suppliers. Although there are 1500 in all—with Delphi and Visteon among the largest—all are continually squeezed by the Big Three, and a couple have already exited the industry. It is in this context that suppliers are “forced” to cut the wages and benefits of their work force.

Suppliers are increasingly responsible for research and development. They now register more than three times as many patents as automakers. At the same time these corporations have been forced to reduce their prices 3% annually. Profitability has been halved. Yet a study by the Boston Consulting Group reveals that suppliers create more than 60% of the auto industry’s value.

Delphi manufactures a range of mechanical and electrical components.  It has 164 manufacturing sites, 41 joint ventures, 33 technical centers and 185,000 employees in 38 countries. Headquartered in Troy, Michigan, it has offices in Paris, Tokyo and Sao Paulo. Delphi Corporation employs 33,000 workers in the United States and 39,000 in Mexico. Its annual revenues are $28 billion; its main competitors are Johnson Controls, Bosch and Visteon.

In addition to the general problem Delphi faces as a supplier, it is also under investigation from the Securities and Exchange Commission because of “accounting irregularities” with its supplier, EDS. As a result, several top officers were forced out.

Last July Delphi hired Robert S. (“Steve”) Miller as its CEO, paying him a $3 million signing bonus and a $1.5 million annual contract. Within three months Miller, who had previously piloted Bethlehem Steel and United Air Lines through bankruptcy, had Delphi in bankruptcy court. Delphi claimed it lost $6.3 billion over the last seven quarters on its North American operations, with liabilities of $21 billion and only $16.6 billion in assets. In a confidential memo obtained by the Detroit News, Delphi outlined its plan to close down several product lines and plants to focus “global dominance” on electronic and safety products. While planning on shutting down five plants, including Delphi East in Flint, the Delphi memo identifies Motorola Automotive as an acquisition target. That company makes components for vehicle navigation and safety systems.

At a November 6 rank-and-file meeting near Grand Rapids, one woman from Delphi East (employing about 3,400 workers) spoke about how much of the floor space in her plant is already empty. Management has no future product lined up.

What’s management’s reorganization plan? According to Gretchen Morgenson’s column in the New York Times (11/13/05), Delphi’s lawyers motivated the 35-page document by saying that the managers must be “appropriately incentivized to maximize the financial performance” of the company. Although CEO Steve Miller magnanimously accepted an annual compensation of $1 and other high-ranking officials agreed to a 10-20% pay cut, these prove meager in the light of what management is staking out for itself. While the plan did not outline performance goals, it sought to set aside, for the first six months of 2006 alone, $21.5 million in incentive bonuses.

Morgenson pointed out that this equals the entire 2004 compensation package paid to Toyota’s top 33 executives. Once Delphi emerged from bankruptcy or sold its assets, $88 million would go to Delphi’s top 500 employees (with 10% to four executives). After reorganization, $400 million would be distributed to 600 managers.  Is this an incentive plan, or a fire sale like the one that took place when state enterprises in the former Soviet Union were privatized?

Is the U.S. Auto Industry Dying? Experts tell us that the U.S. auto industry has fallen on hard times, with domestic sales predicted to hover around 17.5-19 million vehicles over the next five years and razor-thin profit margins.

General Motors, Ford and Daimler Chrysler made the decision to market SUVs and pick-up trucks, forgoing the lower-profit sedan sales.& Their strategy worked for a while, but lack of investment in technology and design coupled with higher gas prices caught up with them. Over the last two years zero percent financing and cash rebates (average incentive was $2932 in 2004) have been essential in keeping the Big Three’s sales up. Meanwhile the “new domestics”—including Toyota, Honda, Nissan, Hyundai, Kia, BMW and Mercedes- Benz—have cut large swaths into the Big Three’s market. Today these corporations produce nearly five million cars and trucks in North America, double what they produced a decade ago. In the United States transplants already employ 250,000 people, approximately 27% of the nation’s one million auto jobs.

Transplants are on a roll. Between 1995-2004 they took 14% of the domestic market share from the Big Three—equivalent to the capacity of 10 assembly plants.  They plan to open additional plants in North America at the same time GM and Ford announce plant closures. Some analysts predict that by 2012 they will employ approximately 40% of all U.S. autoworkers.

Worldwide 80 million cars, trucks and SUVs can be produced annually but demand remains at 60 million. It’s like a game of musical chairs, where one or more manufacturers may lose out. This does not mean, however, that the U.S. auto industry is declining. Between 1997-2003, productivity rose one-third. From 1990-2003 the industry’s gross output outperformed other sectors of U.S. manufacturing by 20%. While manufacturing employment remained flat throughout the 1990s, auto employment grew 25%, then added 55,000 more workers between 2000-04. But the problem of overproduction remains, and is intensified as transplants take over more of the domestic market.

According to GM, which currently employs 111,000 U.S. workers, relative to Toyota it suffers an annual $10 billion cost disadvantage in North America: $5 billion for health costs and wages, $3 for excess capacity and $2 billion for ongoing retiree and warranty costs at Delphi.

Last fall Delphi, GM and Ford announced restructuring plans that will eliminate something on the order of 80,000 jobs in the United States and Canada. For Delphi this represented two-thirds of its total U.S.-based work force.

Just as with the first round of concessions in 1979-82, corporations claim that to stay in business the unionized work force must take huge concessions. They, and various economists, say the problem is “legacy costs,” the health care and pension benefit package unionized workers won over the past half century.  Transplants, on the other hand, have a younger work force. They have been able to prevent unionization by locating in low-wage “right-to-work” states while paying wages comparable to the Big Three.

The overwhelming majority of U.S. auto workers were once unionized, but today that figure has been altered by a combination of plants, particularly parts plants, relocating to “right-to-work” states and by the opening of transplant facilities. While in 1978 82% of all vehicles sold in the United States and Canada were produced by union labor, today it has slipped to 60%.

The drop in union density weakens the United Auto Workers (and five smaller unions also representing auto workers), and this is reinforced by union acceptance of a concessionary framework. Whereas once wages in the parts industry were within range of Big Three wages, over the last few years the UAW International advocated, in order to “save” jobs, acceptance of a two- or even three-tier structure of wages and defined-contribution health care benefits.

This framework reduces negotiating to discussing how concessions should be applied. In contrast, the Canadian Auto Workers (CAW), born in opposition to the UAW-accepted concessions of the 1979-82 period, has pledged opposition to the new round of concessions—although given the level of integration across the U.S.-Canadian border that will prove difficult.

The Union Response to the Crisis During the last round of negotiations with Delphi, the UAW agreed to a seven-year contract that set a lower wage structure for all future workers. In return Delphi agreed not to close any of its U.S. plants without UAW approval until 2011. UAW President Ron Gettelfinger then announced: “This agreement commits Delphi to make significant investments in the long-term future of its UAW-represented facilities in the United States.” Both the UAW and Delphi faced many hard choices during these negotiations, but we stepped up to our mutual responsibility to work together to keep good manufacturing jobs in America.”

Those of us who fought against a tiered wage structure during the 2003-04 negotiations predicted that this pact would only encourage more demands for concessions.  But none could have predicted how far and how fast those demands escalated.

In our discussions we pointed out that if the union abandons any set of workers, the bonds of solidarity disintegrate. If production workers hire in at $14 an hour and top off at $18.50 while the old rate is $27, why won’t the company try to fire those at the higher rate? And as the lower-wage work force replaces the older one, why would they be interested in protecting retiree benefits?

A tiered wage structure undermines solidarity among workers. It is negotiated in the mistaken notion that the interests of working people and the interests of the companies are the same.  But we can see in this crisis what an illusion that is. The problem isn’t GM vs. Ford or U.S.-based corporations vs. transplants, but how to take wages and benefits out of the equation so that whomever one works for and wherever one works, wages and benefits are comparable.

Twenty-five years ago the Big Three demanded concessions and a government bailout. Over the last ten years they sold off their parts divisions as a way to outsource. Now Delphi is using bankruptcy to reposition itself. And workers are told there is nothing that can be done: As Delphi’s Steve Miller remarked at a recent press conference, “They pursued the American dream and globalization swept over them.”

But GM knew how vulnerable it was by a slowdown or a strike that would starve it of parts within days.  Given that it is launching new models it is particularly vulnerable. So by November 28 GM agreed to temporarily forgo a previously negotiated price reduction for Delphi parts, which was to go into effect at the beginning of 2006. GM also announced that it would accelerate talks on various forms of financial assistance to Delphi. GM may be losing money, but it’s got plenty of cash to bail out its supplier, particularly to pension off a good portion of its work force. This provides Delphi with more wiggle room in its negotiations with the UAW.

Miller then informed the UAW that the contract deadline has been moved back to the end of January.  Two subsequent offers were forthcoming, each slightly less horrendous. Delphi representative Claudia Piccinin stated that “We’re still focused on working out a consensual agreement, and we’re hopeful we’ll be able to do that.” With the December 19 announcement it’s clear that Delphi needs to work out a better agreement with the UAW.

The UAW International recognizes that Delphi workers are angry. They suggested that union locals hold town hall meetings and sent representatives to speak, encouraged informational picketing as well as mass petitioning to the bankruptcy judge and to local city officials. They encouraged UAW locals to organize rallies on December 10, Human Rights Day. Some, like the Kokomo rally of more than 1,000, were quite militant, with workers carrying signs saying “Delphi cooks the books/Workers get BURNED.”

It has been more than 20 years since even these controlled organizing efforts have been allowed in the UAW. As one retiree, a former officer of a local noted, “Local leaders haven’t disagreed with the International Executive Board in 30 or 40 years…This union wasn’t organized by handraisers; it was organized by hellraisers!”

Perhaps the UAW will end up “negotiating” a wage closer to $16-18 an hour and find a way to sweeten the pot with GM saddling many of the legacy costs. Then workers are supposed to breathe a sigh of relief that the ones left working after all the plant closures will lose “only” $10 an hour.

It will be a hard sell, but all that seems to stand in the way is the rank-and-file organizing that represents the largest grassroots opposition to concessions since the late 1980s. Evidence of the organizing can be found in buttons, T-shirts, leaflets, websites and in the growing press coverage.

Concessions open the road to the next round of concessions. They also prevent the union from growing. Why should autoworkers brave company opposition in order to join a union that is taking concessions?

Clearly the task is to prioritize organizing the transplants and auto parts sector, bringing wages and working conditions up to standard. Every union local would need to develop an organizing plan, tracing the line of suppliers back to discover who is unionized and who is not, who has been forced to take concessions and who has not.

Auto workers in each non-union facility need to organize themselves as a union, well before they have convinced 50%+1 to join. (This is known as a “non-majority” union, and has been pioneered by the UE in the South.) They will need to develop a creative perspective that builds itself on their own needs and aspirations and establishes ties of solidarity with unionized plants.

Such a perspective assumes that our ties are to other workers (not just in North America, but that’s the platform from which we must begin), not to the management of our particular corporation. It assumes a concessionary strategy is a losing one. It also assumes that there is no reason why health care and pensions should be tied to a specific company.  Assaulting Health Care Obligations

As the corporations have explained, health care is a structural burden on U.S. industry. This burden feeds into the even larger crisis of the inefficient and privatized health care system we have. The conclusion is that there can be no lasting solution to this problem within the confines of negotiations, particularly given that only 12% of the work force is unionized.  The health care crisis compels us to conclude this is a social problem demanding governmental solution.

In November 2005 the UAW International reopened the 2003-07 contract with GM, shepherding through a $1 billion health care agreement that will run until 2011. Retirees with annual pensions of more than $8,000 will pay a monthly benefit and increased co-pays.

Active GM workers voted to forgo their 2006 wage increase (3%) and 17 cents per hour of their cost-of-living adjustment (COLA). Starting in 2007, in each quarter an additional two cents will be diverted.

All this money will be placed in a newly established “independent” Voluntary Employee Benefit Association (VEBA) trust. Although GM will contribute $3 billion between 2006-2111, it is not responsible for fully funding or administering VEBA. In other words, VEBA is a “defined-contribution” plan being put into place to provide GM with a mechanism to run away from its obligations.

This agreement actually represents a much larger bite than first appears because the diverted money, already negotiated under the current contact, will not be added to the base wage in the 2007 contract negotiations.  Yet at $1 billion this represents the largest UAW concession to GM since 1982.

Going into the 2003 contract negotiations, UAW President Ron Gettelfinger said he would not compromise around health care benefits. Although the resulting contract contained additional co-pays for prescriptions, and more autoworkers were forced to move from Blue Cross into health care plans (PPOs), the UAW held the line.

Why then did he agree to reopen the contract? An October 20 letter by Gettelfinger and UAW Vice President Richard Shoemaker, printed as part of the UAW’s explanation of the proposed health care agreement, explains that the UAW analyzed GM’s financial situation and concluded it was in bad shape. Whereas in 1985 GM commanded 41% of the U.S. market, by May 2005 its share was 26%, its credit rating downgraded to “junk” status. GM reported losses of $4.2 billion from its North American operations.

While it is true that GM’s market share has plummeted, it’s a bad bargain for the UAW to take $1 billion worth of up-front concessions, boasting that GM has agreed to “an unprecedented effort to improve the affordability, accessibility and accountability of the U.S. health care system, including the pursuit of universal coverage.” That’s a pretty vague promise.

Health care costs are going through the roof. Between 1998-2004, while productivity increased, GM claims its health care costs rose 61.4%. In fact more cars are produced in Ontario than Michigan—because it’s cheaper for the Big Three to produce vehicles where there’s a single payer health care system. Through this system (and the difference in the exchange rate), GM saves $20,000 a year on each Canadian worker.

Yes, corporations like GM do pay billions for U.S. workers’ health benefits. Under a profit-driven system, in which coverage is a benefit of one’s job, we spend more on health care and get less for our money than any other industrialized country. (We spend 14-15% of our GDP on health care while Canada spends 9%.) If workers are laid off, benefits disappear. If under spiraling health costs and an anti-union environment a new contract means higher co-pays, our living standards deteriorate.

About half of all personal bankruptcies are caused by illness or medical bills.  According to the Harvard Consumer Bankruptcy Project, that represents one million personal bankruptcies annually. Between 1981-2001 medical bankruptcies increased 23-fold. Caught in the vise of rising medical costs and declining coverage, 75% actually had health insurance when they fell ill.

In addition, 45 million, many working people and their families, have no coverage at all. Some are low-wage workers who can’t afford to buy their own insurance. As a consequence, a study by Professors David Himmelstein and Steffie Woolhandler concluded almost 100,000 Americans die each year for lack of care. Race and class are also determinants in the kind of health care one receives: a blue-collar worker with a cardiovascular disease is 2.4 times more likely to die from it than a corporate lawyer. During his first term President Bill Clinton thought he could achieve health care reform, assembling a coalition that included some of the largest corporations. But they dropped away when a combination of the insurance companies and the right wing vigorously opposed the tepid reform.

Now top corporate managers have concluded they don’t need to cover health care, even indirectly, through the government.

New Possibilities What’s needed is to face the health care crisis with a campaign—spearheaded by the unions and civil rights and social justice organizations—that can offer a solution: a universal health system that takes profit out of health care and takes costs out of the wage package.

The only solution to the problem of declining benefits and rising health care costs is a public fight. This could include raising the issue of portability of benefits for those who currently have them, but the solution is what every other industrialized society already has: a health care system open to every person living in the country.

Some may think it’s utopian to suggest such a huge change, especially given a government that is cutting off social programs. Yet isn’t it at times of crisis that new possibilities emerge? With only 12% of the U.S. working class unionized, anyone with a decent health care benefit will find that unless we develop universal health care, benefits will continue to deteriorate.

Of course this does not solve the problem of overcapacity, which is built into the economic system under which we live. Until we find a way to build a less exploitative one, we will be continually confronted with this issue.

ATC 120, January-February 2006