Delphi’s Pact to Echo Throughout the Industry

Delphi Corp.’s momentous wage pact with the United Auto Workers union, which rank-and-file workers approved by a wide margin, promises to echo throughout the industry’s tumult-ridden supplier base, with parts manufacturers and other unions likely to borrow aspects of the deal, industry analysts say.

Sixty-eight percent of UAW members at Delphi plants across the country voted in favor of the pact, the company announced last Friday. The deal, which gives veteran workers cash payouts in lieu of wage and benefit cuts, clears the way for Delphi to emerge from bankruptcy and stop the threat of a strike that could have significantly injured General Motors Corp., Delphi’s largest customer. The production of GM’s Saturn catalytic converters and other domestic auto parts could have been crippled.

While other suppliers are not likely to copy the pact verbatim, some aspects are bound to lure cash-poor companies and unions frantic to hang onto jobs. “This is precedent-setting within the supplier base,” said David Cole, the chairman of the Center for Automotive Research in Ann Arbor. “Any of the parts suppliers that are organized by the UAW will have some interest in what was done as a part of this bargaining. They will look at this as a pattern.”

Cole said that the wage-lowering aspects of the Delphi deal could be attractive to ACH. But spokeswoman Della DiPietro said that the ACH is in a markedly different contract situation than Delphi because its contracts are being negotiated plant-by-plant between the union and buyers. One plant has been sold and seven have potential purchasers. “What worked for Delphi and GM might not work for other suppliers,” DiPietro said.

The auto industry’s turnaround plans have hit suppliers hard. Detroit’s Big Three are slashing production amid declining market share, resulting to fewer and smaller orders for suppliers. Meanwhile, the automakers are being forced by the increasing cost of raw materials used to manufacture vehicles, keeping the heat on suppliers to reduce prices.

Several high-profile parts manufacturers have filed for bankruptcy in the past, including Southfield’s Collins & Aikman Corp and Toledo’s Dana Corp. Additionally, the Ford Motor Co. is in the process of liquidating the facilities of Visteon Corp., its former parts operation. The Dearborn automaker created the Automotive Component Holdings LLC, to dispose of the plants.

With approval of the Delphi deal, about 4,000 of the supplier’s 17,000 UAW workers will be offered a payout of $105,000 over three years. In return, their pay will be reduced from about $27 an hour to a maximum of $18.50 starting on the first of October.

Cutting the deal and having it ratified by the UAW was the biggest hurdle to Delphi’s exit from bankruptcy, a process started nearly two years ago when the parts manufacturer filed for Chapter 11. A pact also was needed to finalize a $3.4 billion deal to recapitalize Delphi. Prospective investors include Appaloosa Capital Management LP.

The UAW announced its vote results last Friday with a posting on its Web site. Production workers favored the deal by a 65-35 percent margin and skilled trades workers approved it 79-21 percent.

More than 80 percent of workers agreed to the concessions at Saginaw Steering Gear. Mike Hanley, the president of a large UAW local in Saginaw, said that the agreement proves that UAW members can change with the global economy.

The Delphi deal also signals that in tough times the union and automakers are able to work together and agree on meaningful compromises, said corporate restructuring expert Gregory Charleston, the managing director of Conway, MacKenzie & Dunleavy in Detroit. “It’s pretty encouraging in terms of both parties being willing to come up with something that works,” he said.

Anthony Fontanelle is a 35-year-old automotive.buff who grew up in the Windy City. He does freelance work for an automotive magazine when he is not busy customizing cars in his shop.
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