The price of labor peace may have gone too high for financially ailing General Motors Corp.
Talks continued yesterday among GM, the United Auto Workers union and Delphi Corp., GM's largest supplier. But Delphi says it will file motions in bankruptcy court tomorrow to void its union contracts if it doesn't have a deal by then.
The stalemate increases the possibility of strikes at Delphi that could cripple, if not kill, both companies. GM is fighting for its life and, after losing $10.6 billion last year, is racing to cut labor and other costs.
The showdown comes after the UAW on Tuesday rejected an offer from GM and Delphi that would require Delphi workers to accept lower pay and benefits now and even less in the future.
Hearings on motions to void Delphi's labor contracts would start May 8, and U.S. Bankruptcy Judge Robert Drain, in New York, could throw out the contracts by mid-June, clearing the way for the UAW and Delphi's other unions to legally strike. Drain also could order negotiations to continue into the summer with the hope of reaching an agreement.
But simply filing the motions could trigger local strikes or slowdowns by angry workers seeking revenge with or without the blessing of the UAW's headquarters in Detroit. Slowdowns could crimp GM's North American production, and walkouts could bring it to a halt within days.
After Delphi filed for bankruptcy protection in October, it told workers it wanted to cut wages to about $10 an hour from $27. The latest proposal would cut wages to $22 on July 3 and then to $16 in September 2007, when the UAW negotiates a new contract. Workers also would have to pay more for medical benefits.
Under this plan, GM reportedly would give workers $50,000 bonuses to accept lower wages and subsidize wages until the current contract ends.
Separately, GM agreed last week to give $35,000 retirement incentives to 13,000 Delphi workers, and take back another 5,000 into GM plants and assume their pension benefits. Delphi has 24,000 UAW workers and 9,000 in other unions.
When GM spun off Delphi in 1999, it agreed to guarantee future employment and retirement benefits for some Delphi workers. Analysts estimate the Delphi buyouts and pension liabilities will cost GM $1.8 billion to $2 billion.
GM is thinning its union ranks by offering retirement incentives of $35,000 to $140,000 to its 113,000 UAW workers. GM wants to eliminate 30,000 union jobs by 2008.
Those efforts, however, have failed to persuade the UAW to accept pay cuts at Delphi, leaving the door open for a strike.
"We're waiting now to see who blinks first," said George Peterson, president of industry forecaster AutoPacific, adding that a strike could mean disaster for everyone, the worst case being that it pushes GM "to the brink of bankruptcy if not over the edge."
"If Delphi shuts down, it brings GM to its knees, because GM has no secondary sources to fill the parts pipeline it needs to keep going," Peterson said.
Conversely, he said, a strike "could kill the union." If faced with the prospect of no job or about $20 an hour, "I'd guess $20 an hour wouldn't look unreasonable," he said.
At the same time GM tries to placate the UAW and keep parts flowing from Delphi, it has to wrestle with growing financial issues.
Yesterday, Moody's Investor Service lowered GM's credit ratings to "B3," one step further into "junk" or below investment grade, over concerns that GM may not be able to tap $5.6 billion in revolving credit and would have to use more of its cash instead.
Standard & Poor's Ratings Services said it has put GM on a "credit watch," meaning it could lower GM's rating because of concerns about the automaker's access to credit, the GMAC sale, a possible Delphi strike and its money-losing North American operations.
Rick Popely and Jim Mateja write for the Chicago Tribune.