One of the largest auto part giants, Delphi, just filed for bankruptcy. Why, you ask? Here is one of the primary reasons:
It is the biggest bankruptcy filing in U.S. automotive history and promises to have a broad impact across the industry. The Troy, Michigan-based company has struggled since it was spun off from former parent General Motors Corp. in 1999, posting net losses of $741 million in the first half of 2005 alone….
Delphi (down $1.08 to $1.12, Research) has been warning of the threat of a bankruptcy filing for months. Its executives have been seeking deals with both the UAW and former parent General Motors Corp. in an effort to win what would essentially be a multi-billion dollar bailout and stave off a bankruptcy filing….
Almost 150,000 of its employees at the end of 2005 were union members, with 25,000 in the United Autoworkers here in the United States…
Delphi started as a division within General Motors supplying its different brands with auto parts. Its unionized employees were essentially covered under the same labor contracts as other UAW members at GM, putting the unit at a cost disadvantage with some of its competitors. It also had little ability to sell parts to other automakers. Last year nearly half of the company’s 2004 revenue of $28 billion was to automakers other than GM, up from only a bit more than a third of its sales in 2002.
What, you mean unions forcing Delphi to pay its forklift operators six-figure incomes was not good for the company? Who would have guessed.
This, after the news less than a month ago that another company went down because of unions:
Delta Air Lines Inc. and Northwest Airlines, the nation’s No. 3 and No. 4 air carriers, both declared bankruptcy Wednesday as the industry’s struggle with soaring oil prices and low-cost competition came to a dramatic head….
Labor costs
Northwest’s woes center on high labor costs, which it is trying to slash by $1.1 billion.Analysts said Northwest, which hired replacement workers to substitute for mechanics and cleaners who struck last month, could be using bankruptcy to get concessions that unions have been unwilling to grant at the bargaining table.
The next time a friend complains about the lack of jobs in your area, don’t blame free trade, blame unions.
I leave you with the words of the greatest economist of the 20th century, Milton Friedman,
“If unions raise wage rates in a particular occupation or industry, they necessarily make the amount of employment available in that occupation or industry less than it otherwise would be — just as any higher price cuts down the amount purchased. The effect is an increased number of persons seeking other jobs, which forces down wages in other occupations. Since unions have generally been strongest among groups that would have been high-paid anyway, their effect has been to make high-paid workers higher paid at the expense of lower-paid workers. Unions have therefore not only harmed the public at large and workers as a whole by distorting the use of labor; they have also made the incomes of the working class more unequal by reducing the opportunities available to the most disadvantaged workers”. — Milton Friedman in “Capitalism And Freedom”
I don’t think that you can ignore the high fuel prices from the equation. These fuel costs are of costs exasperated by the record profits the oil and energy companies continue to bring in, while the administration and the republican congress continues to prop up these businesses through tax subsidies in the corrupt energy and refinery bills, while they are already exploiting loopholes in the tax code by setting up phony offshore parents (while a presidentially appointed panel to investigate revisions in the tax code to help close the obsene deficits only proposal will be to cut the deductions in mortgage interest and health care costs - two deductions most likely to screw the middle class.
Meanwhile CEO’s continue to earn historically disproportiante compensation packages approved by board members all in incestuous relationships with one another.
These factors have nothing to do with bankrutcies, its the working stiffs causing the problems the guys checking your bags, taking your reservation, flying your plane serving you drinks. They are living too high on the hog.
Also Delphi is seeking wage cuts of 67% for its union workers while it has sweeteneed the severance package for its top executives.
Michael,
Can you show me your sources from where you get your information?
It’s several different factors, but labor costs are certainly one of the primary ones.
It is a 63% wage cut according to a Detroit Free Press article. This was information made available from the union. The co had no comment.
One other problem that I neglected to mention was the investigation by the SEC regarding accounting irregularities.
Let’s not forget that labor costs also affect non-union employees. Has upper management taken a cut?
In many companies top execs negotiate a lucrative golden parachute while they are asking the rank and file to take cuts and layoffs.
The other stuff like the proposed tax code changes are from today’s NY Times. The off-shores are pretty much regularly repored as are the pay packages for CEO’s.
Michael,
Let’s not forget that labor costs also affect non-union employees. Has upper management taken a cut?
In many companies top execs negotiate a lucrative golden parachute while they are asking the rank and file to take cuts and layoffs.
But you forget, in a downturn, execs tend to be the first ones to leave. As the company is going down, execs leave early because they know they will need a new job sometime in the near future, and they don’t want to be on a sinking ship, so company’s need to pay more to retain them, especially the really good execs. In other words, the company usually needs to pay their execs more, or else they will lose all of their best execs, and go down for sure. That is not the case with the union labor employment.
the company usually needs to pay their execs more, or else they will lose all of their best execs, and go down for sure.
Its not always the best execs who get the golden parachutes, sometimes they are just the best connected. Some of these execs are financial execs who put them under SEC investigation.