ANN ARBOR, Mich. – Delphi Corp.'s (search) 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.
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. General Motors Corp. (GM), Delphi's largest customer and former parent, said it might have to assume up to $11 billion in retirement benefits for Delphi's union-represented employees.
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 (search). 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.
"There's a great deal of concern among auto suppliers about whether they can remain profitable or survive with union contracts," said Jim Gillette, a supplier analyst with CSM Worldwide. "If Delphi's willing to force renegotiation through a bankruptcy filing, I suspect other suppliers would do the same."
Delphi's (DPH) 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. Tonyia Young, a UAW member from Anderson, Ind., has worked for auto supplier Guide Corp. since 2002 and worries that Guide will match changes in Delphi's contracts because Delphi has a plant nearby. Guide, like Delphi, already has a two-tier wage agreement that allows it to pay newer hires like Young around $15 per hour, $8 less than its older hires.
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.
Young said concessions at supplier plants are part of a growing pattern that UAW members need to confront during Delphi's restructuring.
"I think Delphi workers probably have no choice but to strike," she said. "The corporation has filed bankruptcy and they've kind of drawn the line in the sand about what they're willing to do. It seems to me that any negotiation between our leadership and Delphi will not be very productive."
But 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.