The Hammer Of Bankruptcy At Delphi
By JOSEPH NOCERA
''WHAT do you think when you see so many companies using bankruptcy as a tool to get their labor costs ''
Francisco A. Lorenzo -- yes, Frank Lorenzo -- cut me off in midquestion.
''Tool?'' he practically shouted into the phone. ''When you use that word, you are spinning things, and very unfairly. That's the word the unions always used.''
''Bankruptcy is not a tool,'' he continued. ''It is a last resort. You have companies that have run out of options in dealing with enormous costs that have made them uncompetitive. Nobody wants to go into bankruptcy. It's the last straw. It's the end of the line. The only thing it's better than is liquidation.''
It seems safe to say that 23 years after Mr. Lorenzo first showed the way -- after he took his cash-strapped airline, Continental, into bankruptcy, ripped up its labor contracts, laid off thousands of workers, hired replacements for its striking pilots and flight attendants, paid them half the old union salaries while insisting they work longer hours, and became in the process the most reviled captain of industry since Jay Gould -- even after all this time, Mr. Lorenzo is still a wee bit sensitive on the subject of using bankruptcy to get costs under control.
Nobody else seems to be, though. That was one of the most striking things about the aftermath of last weekend's bankruptcy filing by Delphi, the huge auto parts company that was spun out of General Motors six years ago. The company's new chairman and chief executive, Robert S. Miller, who specializes in restructuring troubled companies, is a very different corporate animal from Mr. Lorenzo; as he made the rounds of the business media in the days after the bankruptcy, he practically oozed empathy for the United Automobile Workers, whose members make the parts that Delphi sells.
''My job here is easy compared to Ron Gettelfinger's,'' Mr. Miller said, referring to the head of the U.A.W. ''Ron has the job of helping half a million members adapt to a difficult new reality brought on by the forces of globalization.''
But Mr. Miller's message, at bottom, is not all that different from the one Mr. Lorenzo once delivered: Delphi needs a more competitive cost structure, and bankruptcy is the only way to get there. The company, which lost $2.4 billion last year, simply can't sustain any longer a labor force that gets $65 an hour in overall compensation, and allows workers to retire with full pension and benefits after 30 years, even if they're only in their late 40's. Delphi's competitors, indeed, Delphi's own workers outside the United States, make far less than that.
ALTHOUGH Mr. Miller cannot unilaterally abrogate labor contracts the way Mr. Lorenzo could -- Congress passed a law after the Continental bankruptcy that forces management to negotiate ''in good faith'' with its unions -- Chapter 11 does make it possible for him put enormous pressure on the U.A.W. And this he has already begun to do, presenting the union with a Hobbesian choice.
If it wants to hold onto its rich pension plan, Mr. Miller says, it will have to agree to new, lower wages that will amount to a two-thirds cut in pay. If it refuses to negotiate wages downward, he will seek permission to terminate the Delphi pension plan, just as United Airlines and others have done in bankruptcy. It's one or the other. ''If you want to work for 30 years and be retired for 30 years,'' he said when I spoke to him, ''there is just not enough money any more to support that.''
And how did the country, which had been so outraged by Mr. Lorenzo's tactics once upon a time, react to Mr. Miller's words? Mostly, America gave a resigned shrug. It seems to be accepting these wrenching labor ''retrenchments'' as the cost of globalization, even as they are also making it possible for us to reap the benefit of lower prices on everything from airline seats to Chinese-made costume jewelry.
Besides, after the shriveling of the steel industry and the troubles in the airline industry, was it ever realistic that the domestic auto industry and its workers could avoid similar pain, especially given their difficulties competing against the likes of Toyota and Honda? This moment was inevitable.
''For years, there was almost a kind of collusion between the auto industry and the U.A.W.,'' said Gary Chaison, a professor of labor relations at Clark University. ''The auto industry said, 'We'll give you high pay and benefits, and in return don't give us any problems or work stoppages. And we will pass that cost on to the consumer.''' Indeed, as globalization began to take its toll on the Big Three car manufacturers -- and it could no longer easily pass on the costs to consumers -- the industry took to, in effect, paying off workers so it could close down money-losing plants without union opposition.
The U.A.W., Mr. Chaison pointed out, was one of the great, innovative organizations in American history. ''Cost of living allowances, guaranteed annual wages and supplemental unemployment benefits were first introduced by the United Auto Workers,'' he said. But, he added, like all of the big industrial unions, the U.A.W. has never figured out how to deal with globalization. ''What they do is, they have a conference, or present papers, or talk about cooperation between unions and social movements in other countries. They don't know how to take wages and working conditions out of the realm of competition. And they don't know how to deal with something that is beyond the jurisdiction of their own membership.''
When I spoke to Mr. Gettelfinger on Thursday afternoon, I got a little feel for what Mr. Chaison was talking about. ''We have said all along that we have to do something about these free trade agreements,'' he said. Delphi, he added, was a classic example of the problem with globalization, especially since Delphi workers overseas were paid so much less than Delphi workers in the United States. ''It is a classic play-off of worker against worker, and it is a race to the bottom in terms of wages and benefits.'' When I pointed out that it was highly unlikely that the government was going to turn away from free trade agreements, he sadly agreed. ''It's as if they are trying to do away with the middle class,'' he said.
He also went on a long tangent about an Electrolux refrigerator plant in the small town of Greenville, Mich., which employs some 2,500 U.A.W. workers. ''They are closing it down and moving it to Mexico,'' Mr. Gettelfinger complained, even though last year, the local union offered wage concessions and the state offered tax abatements. But in truth, there is nothing the U.A.W. head can do about that either.
What Mr. Gettelfinger can do -- the only thing he can do right now -- is begin negotiating with Mr. Miller. When I asked how he planned to play the awful hand he'd been dealt by the Delphi bankruptcy, he rebuffed the question. Unlike Mr. Miller, he said acidly, ''We don't negotiate in the media.''
But he did say that the membership was furious that this newcomer -- Mr. Miller has only been C.E.O. since July -- had the nerve to ''stand in front of them with a Delphi hat on and tell them he was the only one in America telling the truth. I cannot stress to you how upset the membership is,'' he added. He also expressed outrage that Mr. Miller was acting, as he put it, ''like he's some kind of dictator. Our union acts as a democracy. Whether he likes it or not, our membership will have some say in the final in the outcome of these deliberations.''
He's right, of course: the U.A.W. will have some say, but not nearlyas much as it would have had if Delphi hadn't filed for bankruptcy. Frank Lorenzo notwithstanding, bankruptcy is indeed a tool for dealing with union labor costs in a globalized age, perhaps the most powerful one ever devised. That's not spin. That's cold, hard fact.