Bloomberg, April 3, 2006, Monday

Bloomberg

Delphi, UAW and GM Have Fingers on Doomsday Button: Doron Levin
http://www.bloomberg.com/apps/news?pid=10000039&sid=ag385Y3PE6gk&refer=columnist_levin

April 3 (Bloomberg) -- A replay of cold war-style brinksmanship is unfolding in Detroit, where the United Auto Workers union and bankrupt Delphi Corp. are threatening one another with mutually-assured destruction.
And just as European capitals once cowered at the prospect of a U.S.-Soviet nuclear exchange, General Motors Corp. is fearful it could become collateral damage in a Delphi-UAW blowup.
Delphi on Friday asked the bankruptcy court to void UAW and other union contracts covering 33,000 workers at 41 North American factories. As part of Delphi's restructuring, the former GM auto-parts subsidiary intends to fire 8,500, or 25 percent, of its salaried employees and sell a raft of U.S. plants.
A few days earlier, the UAW rejected Delphi's proposal to cut wages and benefits. The union began telling members to start preparing for the labor equivalent of war.
``In the event the court rejects the UAW-Delphi contract and Delphi imposes the terms of its last proposal, it appears that it will be impossible to avoid a long strike,'' UAW President Ron Gettelfinger said in a statement.
Standing directly in the line of fire is GM. Delphi, GM's biggest supplier, feeds parts to the automaker's assembly lines. Delphi Chief Executive Officer Steve Miller has explained time and again that the parts maker no longer has money or credit to pay premium UAW wages to hourly workers.
GM's Deep Pockets
But GM, Delphi's biggest customer, still has $20 billion in cash. The UAW figures GM can make up the shortfall between what Delphi can pay and the union's wage and benefit demands. If GM balks, UAW workers hit the picket lines at Delphi, forcing GM assembly plants to begin closing.
The UAW has to be calculating that Rick Wagoner's tenure as GM's CEO is shaky, leaving him in a weak position to absorb a walkout and, therefore, more apt to cough up.
The union has to take care and not overplay its hand, though, since Delphi's other creditors are watching and want to maximize recovery of their loans. An overly generous GM payment to Delphi workers inflates the overall obligation and could narrow the recovery of others. If creditors decide Delphi has too little value as an operating company, they can vote to close the doors and liquidate.
Wary Lenders
Bonds of auto parts suppliers and automakers outperformed all other industry segments in the first quarter, partly reflecting investor sentiment that the assets of troubled companies could fetch attractive prices if those plants, tools, brands and other assets are bought by skilled managers.
In a lengthy strike against Delphi, GM could see its creditors panic and shorten payment terms, possibly triggering a GM bankruptcy filing. A GM failure would give Miller more reason to fire UAW workers and close U.S. factories or move them offshore.
And the UAW? The labor union -- already less than half its size in 1970 -- will have marched another mile down the road to irrelevance, a place already inhabited by remnants of unions like the once-mighty United Steelworkers of America.
In showdowns past, last-minute UAW agreements often materialized before the strike deadline. Some cognoscenti are confident back-room negotiators once again will avert disaster.
Risky Charade
``It's in Delphi's interest to make things sound as bad as possible and the UAW's interest to say it's going to be as tough as possible,'' said Arthur Wheaton, who teaches labor relations at Cornell University in Ithaca, New York. ``I still think they'll come to a negotiated settlement, but it won't be until May. The cost of failure is too high.''
David Cole, who heads the Center for Automotive Research in Ann Arbor, Michigan, said ``the theatrics are exactly what you'd expect. They'll agree to some reduced wage and GM will subsidize the difference.''
Strikes -- if they're managed adroitly -- can be a useful way for unions to let members blow off steam. Once strikes start, though, their course is unpredictable.
The optimists may turn out to be right. Yet history is filled with examples of companies and labor unions sharing a mutual interest in compromise and failing to make a deal. For every United Airlines -- which emerged from bankruptcy Feb. 1 and said Friday it is hiring 4,000 workers -- there is an Eastern Airlines, which suffered a strike by machinists and filed for Chapter 11 in 1989 and went out of business two years later.
The lesson to be learned is that threats, posturing and hostility are a terrible way to forge a social contract among employers, workers and their unions.

To contact the writer of this column:Doron Levin in Southfield, Michigan at dlevin5@bloomberg.net
Last Updated: April 3, 2006 00:04 EDT