Delphi, General Motors and union leaders were yesterday on the verge of a landmark deal on labour concessions at North America’s biggest motor parts supplier.
The United Auto Workers’ union is sure to insist that any concessions it grants Delphi should not be seen as a precedent. Nonetheless, an accord at the parts supplier would give some hints on the union’s flexibility ahead of critical negotiations with the big three US carmakers.
Delphi gave notice in March 2006 that it planned to tear up its labour contracts as part of a drive to improve the competitiveness of its US operations.
For the past 15 months, the message has gone out that the talks on wage and benefit cuts would have to be wrapped up before negotiations began on new labour contracts between the UAW and the three Detroit-based carmakers – GM, Ford Motor and Chrysler.
Delphi has so far held off asking the bankruptcy court to impose a new contract. But with a ceremony marking the official start of the carmakers’ talks set for July 23, pressure for a settlement has grown.
Together with a recent agreement involving unionised employees at Goodyear, analysts said a deal at Delphi could set a positive precedent for those talks. “I think the UAW has recognised that the supplier base in North America needs to have a more competitive cost structure,” said Ed Wiest, an analyst at Moody’s.
Delphi and the carmakers have one thing in common: the new labour contracts are critical to their future well-being.
As Rick Wagoner, GM’s chief executive, told the annual meeting earlier this month, the negotiations “are another important opportunity to improve our competitiveness”.
All three companies are bleeding red ink in North America. According to AlixPartners, a consultancy, the three Detroit companies’ average labour costs, at $70-$75 an hour, are $30 an hour higher than that of their Japanese rivals.
While wage levels are roughly the same, GM, Ford and Chrysler are burdened by heavy healthcare and pension costs.
Further, their assembly plants have three times more work classifications and seven times more work rules than the non-unionised “transplants”.
The UAW is in an even tighter spot than the employers. Its membership has shrunk by two-thirds since the early 1970s, sinking to a post-second world war low of 538,000 at the end of last year.
The figure could drop below the half-million mark this year as tens of thousands of GM, Ford, Chrysler and Delphi workers take buy-out packages. The union has closed branches and even laid off some of its own employees.
The UAW leaders must maintain a delicate balance. On one hand, they need to recognise the carmakers’ difficulties if they are not to face further plant closures and job losses, but as elected officials, they dare not risk being seen by their members as pushovers.
A small but vocal group of militants is urging them to stand firm in the coming contract talks.
Ron Gettelfinger, the union’s president, has so far taken a pragmatic line. Behind strident attacks on executives’ pay packages and forceful promises to stand up for his members, he has made significant sacrifices.
As long ago as 2004, the union agreed to a “two-tier” wage structure for existing workers and new hires at Delphi. Since, it has negotiated more flexible work practices at individual plants, especially at Ford.
Under agreements with GM and Ford, workers contribute more to their healthcare plans.
Mr Gettelfinger has recently indicated a willingness to extend these arrangements to Chrysler.
The protracted talks with Delphi are playing out along much the same trajectory of bluster and threats, followed by a settlement.
An agreement at Delphi would be “a positive precedent for the sector,” said Jim Gillette, director of supplier analysis at CSM. “But it’s only one step.”
The union has indicated that it will fight especially hard during the coming negotiations to avoid any rollback in wages for current members, retiree healthcare benefits and pensions.
The carmakers’ labour contracts expire on September 14. An agreement before that date is highly unlikely, however, the risk of a strike within the sector is also considered low.