UAW's high wages at risk

Delphi's filing may symbolize the end of the well-paid worker in the auto industry

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When Delphi Corp., the struggling auto parts giant spun off by General Motors, goes to bankruptcy court today, it will be routine in appearance - but not in symbolism.

This could be a giant step in the unwinding of another American industrial tradition, the era of the privileged and protected blue-collar assembly-line worker.

If Delphi, which filed for Chapter 11 protection Saturday, gets what it seeks in wage and benefit reductions from union members, the pay for members of the United Auto Workers could shrink to as little as $10 an hour from the current $27. Their benefits almost certainly would drop as well.

Those drastic cuts would come not only as a blow to thousands of Delphi workers, they also could set the pattern for negotiations between the union and the Big Three domestic automakers, which for years have struggled to find ways to lower their costs on the assembly line.

"In one fell swoop, U.S. auto workers are going from being solidly in the middle class to being part of the working poor by earning $10 an hour," said Harley Shaiken, a University of California-Berkeley labor expert.

If GM can't get concessions from the UAW when it negotiates a new contract in 2007, analysts are raising the possibility of what once seemed impossible: General Motors in bankruptcy.

`Need to shrink'

GM "ultimately needs to shrink" John Novak, an analyst at Morningstar Inc., told Bloomberg News. "The question is, can they do that in or outside of court?"

The competitive issues bedeviling the auto industry are the same coursing through much of American manufacturing. In the era of globalization, in which non-union Japanese car companies are entrenched in the United States and Chinese factories can produce goods at cheaper prices, the high cost structure of U.S. companies needs to come down.

Shaiken said that could mean auto workers in the future may not be able to afford the cars they build.

But GM isn't out of options. For one, it could sell its GMAC finance unit because it generates most of the profits and cash flow, said Mesirow Financial economist Diane Swonk.

But "after that, all bets are off," Swonk said of the bankruptcy potential for GM.

GM refused to bail out Delphi, its biggest supplier, rolling the dice that Delphi will continue to provide parts during reorganization. GM is Delphi's biggest customer, accounting for nearly half its $28 billion sales.

Delphi, which lost $741 million in the first half, says it will close or sell several of its 45 North American plants and cut thousands of jobs as it restructures.

By not helping Delphi, GM is warning the union to brace for tough talks two years from now, when the four-year contract ends, Burnham Securities analyst David Healy said.

"The Delphi action means negotiations on the 2007 contract with the UAW are under way," Healy said.

"The union has to make concessions because GM can't keep losing money at the rate they are. The small print in the GM financial statements says that in 2004 its labor cost was $78 an hour with benefits," he said.

UAW President Ron Gettelfinger, who on Saturday described Delphi's filing as "an extremely bitter pill," had no comment yesterday.

GM lost $1.64 billion

GM lost $1.64 billion in the first half, with losses at its North American auto unit wiping out profits at GMAC.

GM has pressed the union since April to pay more out-of-pocket for health care and says it will cut 25,000 UAW jobs over the next three years, mainly through attrition.

Even if GM doesn't seek bankruptcy, the UAW faces growing pressure to give back big chunks of the wages and benefits it has won in the last 70 years to save U.S. jobs. Shaiken said that could mean auto workers in the future may not be able to afford the cars they build.

"The power of the union has been altered, and their negotiating power is gone," David Cole, chairman of the Center for Automotive Research, said. "Their wages and benefits are now going to be defined by the bankruptcy judge, which basically means wages and benefits will be defined by the global market where, if you aren't competitive, you have a problem."

Rick Popely, Jim Mateja and Steve Franklin write for the Chicago Tribune.

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