Delphi Goes Bust, GM May Falter

Robert “Steve” Miller, who gets paid $4.5 million a year and has a potential bonus of $2 million, has just taken Delphi, the second largest car parts maker in the world, into Chapter 11 bankruptcy -- which he was hired 3 months ago to do. He has improved the severance packages of 21 senior executives who are on their way out and offered 600 key executives cash and stock to stick around. The company lost $4.8 billion last year and $750 million in the first half of 2005.

The analysts aren’t entirely sure what effect this bankruptcy will have on the rest of the auto industry. Some believe that GM, which spun off Delphi in 1999 and which retains very close ties, may be facing Chapter 11 itself. Others believe that the troubles will be contained at Delphi. However, because bankruptcy laws are changing on October 17, GM and others that may file will play under different rules. And the October 17 deadline is part of the reason Delphi gave up on talks with the United Auto Workers.

The new rules make it hard on consumer debtors whose finances are rocky, but businesses don’t get much of a break either. The bonuses and other emoluments that Mr. Miller passed out to his 600 or so “key” employees might not be permissible under the new rules. And the new rules require a firm to make a quicker exit from bankruptcy or enter liquidation than is the case at present.

The real problem, according to Mr. Miller, is the 185,000 regular workers. “Our labor contracts are simply unaffordable and must be changed,” he told the Financial Times. He wants to slash wages and benefits from a combined total of about $60 per hour to a $20 an hour cost. This is a terrible miscalculation because the workers have nothing to lose by striking. It isn’t that he’s wrong (globalization has made these contracts unworkable – but didn’t management agree to their terms?), but from the shop floor, it looks like he’s paying the big shots by cheating the little guy.

Mr. Miller has tried to split the workers along generational lines. He also told the FT, “I fear something like inter-generational warfare, as young people increasingly resent having their wages reduced and taxed away to support social programs for their grandparents income and health care concerns.” Perhaps, they wouldn’t mind if they were getting $60 in wages and benefits rather than $20. They certainly mind when he makes more than $2,100 an hour and may get a bonus.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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