12 October 2005

Delphi cuts to the chase in Detroit

Bankruptcy shepherd Steve Miller is forcing the issue at not only Delphi, but GM too, and some pros think it’s a perceptive move.

The Wall Street Journal reported General Motors' tumbling stock price, its downgraded debt, and its potential $11 billion liability aren't necessarily the issues anymore. Miller's move to put Delphi into bankruptcy proceedings is good news for the auto giant and good news for Detroit.

We have seen this movie before. Like steel and airlines before it, the traditional U.S. auto industry is struggling mightily, but futilely, to shore up a crumbling edifice. All Miller has done is push the fast-forward button. The end is now near. The sooner we get to the sequel, the better.

Miller was a supporting actor in the premakes, serving as chief executive of Bethlehem Steel when it filed for bankruptcy, and as a director of United Airlines after it did the same. He has long prepared for this big role in the auto industry, having helped turn Chrysler around in 1980 and having done two turns as chief executive for parts maker Federal-Mogul.

Now he has emerged as the leading man. His virtue in that role is a willingness to speak the truth, plainly and clearly. When he does so, you wonder why so many others in Detroit have danced around it for years.

Delphi's two big problems aren't only Detroit's, but also the nation's: globalization and an aging population. Both are immutable. Instead of ignoring them or fighting them, it is time to address them. In just four months, Miller has.

His proposal would slash the wages and benefits of Delphi's workers, who are making the same money as workers at Detroit's Big Three automakers, to roughly a third of their current levels. That may seem harsh. Miller says that simply is the going market wage.

He also is in favor of slashing the soaring cost of health-care benefits for retirees and leaving them to the Medicare program after they turn 65. As for Delphi's pension plan, which is shy by about $5 billion, he said it’s the workers in the United Auto Workers union who have to make a decision.

If they are willing to accept market-level wages for current workers, Delphi will attempt to keep its obligations to retirees. If they want higher pay, the company won't be able to afford the pensioners. In effect, he has posed a generational trade-off–a choice the rest of U.S. will face when Washington finally gets serious about overhauling Social Security and Medicare.