Union cuts help Delphi as salaried cuts lag
David Barkholz
Automotive News
5/9/07
Massive U.S. labor cuts are starting to benefit Delphi Corp.'s bottom line, with the bulk of salaried cuts still to come.
Delphi, which is trying to emerge from Chapter 11 reorganization, narrowed its U.S.
operating loss to just $11 million in March.
In the first quarter, Delphi's global net loss also narrowed to $300 million, excluding $233 million of one-time charges. In the year-earlier quarter, the net loss was $363 million.
A group of private equity firms led by Appaloosa Management LP is insisting on lower labor costs before completing a tentative deal to buy Delphi for up to $3.4 billion.
Delphi hourly workers are noting the improvement as well. UAW dissident Gregg Shotwell
questions why union workers should make additional concessions demanded by Delphi when the supplier's hourly work force has been cut by nearly 40 percent since the Chapter 11 filing in October 2005.
"All of the sacrifices are being made on one end," said Shotwell, a leader of the dissident group Soldiers of Solidarity. He is a former Delphi employee who transferred to General Motors.
Work force restructuring
Plant closings and a GM-financed early retirement program cut Delphi's unionized U.S. work force from 33,100 in December 2005 to 20,000 today.
What's more, the new hires who replaced the 20,000 members who took a buyout or early retirement earn a starting wage of $14 an hour with minimal benefits, compared with $28 an hour with full benefits for veterans.
The savings are substantial. In the first quarter alone, the Delphi Steering unit saved $28 million from having a lower-paid work force, the company revealed in its first-quarter financial filing this week.
The unit represents just 10 percent of the $6.7 billion in Delphi sales posted in the first quarter. So the companywide savings would have been much greater in the quarter. Delphi spokeswoman Claudia Piccinin declined to provide total savings.
Analyst Kirk Ludtke said Delphi's first-quarter results show "clear evidence of a turnaround in the company's financial performance." That is especially so in light of declining North American sales at GM, Delphi's largest customer, said Ludtke, who works for CRT Capital Group LLC in Stamford, Conn.
Meanwhile, announced salaried cuts have been slow in coming. More than a year ago, Delphi said it was cutting 8,500 salaried jobs worldwide. But the company has reduced its salaried work force by just 1,000, to 36,500 -- or 2.7 percent. If an additional 7,500 salaried workers had been cut, Delphi would have saved an additional $562.5 million, assuming a $75,000 per person cost.
Most of Delphi's U.S. salaried workers also have avoided the ax. While the hourly ranks have fallen 39.6 percent, or 13,100, since the Chapter 11 filing, Delphi's U.S. salaried work force has dipped to 13,000 from 14,500, or 10.3 percent.
Equality of sacrifice?
Shotwell said Delphi's U.S. operations might have been profitable if the company had made salaried staff cuts that were equivalent to the sacrifices made by the union.
"How do you justify keeping such a high proportion of salaried employees to hourly workers?" Shotwell asked. "You have more than one salaried worker in the U.S. for every two hourly workers. That's an awfully top-heavy organization."
Delphi's Piccinin said the company has thinned and added to the salaried ranks based on the skills required.
The prospective buyers of Delphi want more wage and benefit cuts. A Delphi proposal to the UAW in late March asked for wages $1 an hour lower than the $14 starting wage. It also sought to slow raises over the course of a supplemental UAW contract with Delphi that expires in 2011. UAW President Ron Gettelfinger vehemently rejected the contract bid and threatened to strike Delphi if the company tries to void current labor contracts through the U.S. Bankruptcy Court in New York.
The UAW is preparing a counteroffer for Delphi later this month. Delphi wants to emerge from Chapter 11 this year, but a deal requires a new labor contract for the potential buyers.
You may e-mail David Barkholz at dbarkholz@crain.com
