Delphi bankruptcy may bring new era for auto industry

ANN ARBOR, Mich. -- Delphi Corp.'s bankruptcy could change the face of the U.S. auto industry, ratcheting up the pressure to produce cheaper auto parts overseas and forcing unprecedented cuts in union wages and benefits, industry analysts and autoworkers said Sunday.

Delphi, the largest U.S. auto supplier, filed for bankruptcy Saturday and is expected to slash jobs and wages and close many of its 31 U.S. plants as part of its reorganization.

But the ripple effects won't end there. Delphi has 500 suppliers of its own who are waiting to see what kind of labor agreement Delphi negotiates with the United Auto Workers. Once a leaner Delphi emerges from bankruptcy, expected in 2007, its suppliers could face added pressure to lower their own costs through wage cuts or increased use of overseas labor.

Delphi's bankruptcy, which is expected to result in plant closures and layoffs, is one of the largest in U.S. history. The Troy-based company has 50,000 U.S. employees.

Union members also are watching closely. In a letter sent to UAW members last week, local union leaders in Indiana said Delphi wants to cut hourly wages from $27 to $10-$12, slash vacation time and make workers contribute more for their own health care. The letter warned that cuts under a bankruptcy judge could be even worse.

David Cole, chairman of the Center for Automotive Research, said the UAW will have to move from a confrontational mode to one of collaboration if it's going to survive. With Delphi's bankruptcy, wages will be set by the market, not by bargaining.

"The Delphi bankruptcy is a real watershed point for the UAW," Cole said. "The UAW is virtually powerless now."

James McTevia, a restructuring expert who is representing Delphi suppliers in the bankruptcy proceedings, said Delphi could set a new model for the entire industry by scaling back its hourly work force and its U.S. manufacturing capacity and giving lower wages and benefits to the workers that remain.

Such a change is sorely needed, McTevia said. Autos and auto parts will always be made in the United States for U.S. customers, he said, but the country needs less capacity than it currently has, and companies need to increase their presence in emerging markets such as Asia.

"North America, Michigan and Detroit are no longer going to be the auto capitals of the world. The auto capital of the world is going global," McTevia said.

Despite Delphi's troubles, Gillette said there's still a future for auto suppliers in the U.S. market. Japanese, German and Korean automakers are moving parts operations here so they can supply their U.S. plants, he said, and while they may not be unionized they often match union wages.

Suppliers who produce parts that require a high level of skill and training, such as precision pieces for fuel injectors, also face less competitive pressure from overseas, he said.

"We do have a competitive advantage in very complex, precision components for the automobile," he said.

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Dee-Ann Durbin can be reached at ddurbin(at)ap.org.

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On the Net:

Delphi Corp., http://www.delphi.com

United Auto Workers, http://www.uaw.org