Delphi bankruptcy raises big questions

News Analysis

Delphi, the nation’s largest auto parts manufacturer, filed for bankruptcy last week. The company’s 12,000 retirees and 34,000 active workers who have spent their lives on hot, noisy production lines, making everything from air bags to instrument panels, are left staring at a future without pensions or health care.

“You feel like throwing up,” Dayna Delling, a 49-year-old electrician at a Delphi plant in Flint, Mich., told The New York Times.

It’s clear that Delphi executives followed the now well-established bankruptcy playbook. They drained the company’s resources, overpaid stockholders and CEOs, transferred production overseas, and left thousands of highly skilled workers on the bench. They also refused to support a national health care system that would have addressed rising health care costs.

Even as Delphi execs are being investigated by the Securities and Exchange Commission for fishy accounting practices, the company’s new CEO Robert “Steve” Miller declared it necessary to sweeten the 21 top executives’ pay packages, already worth an average of $1.1 million each. He claimed the old packages were “uncompetitive.” Six hundred Delphi executives around the world got additional stock and 486 in the U.S. will get cash bonuses totaling $88 million.

“When you see the words ‘executive’ and ‘competitive’ in the same sentence, it’s likely management is about to help itself to a generous share of remaining cash on the grounds that their buddies at other companies are doing the same,” says John Case, an economics columnist for this newspaper.

United Auto Workers President Ron Gettelfinger said, “Once again, we see the disgusting spectacle of the people at the top taking care of themselves at the same time they are demanding extraordinary sacrifices from their hourly workers, engineers, administrative support staff, mid-level managers and others.”

After rewarding his executives, CEO Miller went on to wield the two-edged sword of “competitiveness” against the company’s production and skilled trades workers. These are the folks who actually make the company’s products, bringing in revenues of $28 billion annually. Miller implied that they are the problem at Delphi, citing “the curse of uncompetitive labor contracts” and “legacy issues.”

“Legacy issues” means the workers would like to collect the pension money that is theirs, which the company has supposedly been holding on their behalf.

Company pension funds are typically funded by workers deferring a substantial portion of their wages — sometimes up to $5 or $6 an hour, into a company-managed fund. Much of it is used to buy company stock. With the declaration of bankruptcy, the workers’ stock is now worthless, while many of the big stockholders have moved on to greener pastures.

Miller, who has held the job of Delphi CEO for less than three months, has had plenty of practice with bankruptcy flimflam. He brags that he has been “involved in a leadership position in about 10 corporate restructurings [bankruptcies], starting with Chrysler in 1980,” and including United Airlines and Bethlehem Steel.

Miller says, besides pocketing the workers’ pension and health care funds, the company must break its collective bargaining agreement with the United Auto Workers and two other unions and slash the wages of production workers by more than half, down to about $10 an hour.

That’s $20,000 a year, pushing Delphi’s workforce into the ranks of the working poor. “UAW members would not be able to afford a vehicle that our products are assembled into,” said a memo from the union to its members.

How does a company get away with unilaterally breaking its contracts with its workers and walking away with their pensions? The collusion of the courts — especially the bankruptcy courts — is key, observers say. Bankruptcy judges routinely allow companies to pay all other creditors before the workers. “Pensions are not even considered debt by judges like the one who gave the OK for United Airlines to walk away from its pension obligations,” says economist Case.

Delphi’s employee pension fund is underfunded by $10 billion, according to the federal Pension Benefit Guaranty Corporation. That raises some big questions.

Where is that $10 billion, which represents decades of deferred wages by tens of thousands of Delphi workers?

“The surplus value generated by Delphi workers in the past has mainly been dissipated among executives, stockholders and banks,” says Art Perlo, head of the Communist Party’s Economics Commission.

How much of the $500 billion yearly increase in the combined wealth of the world’s 500 or so billionaires has come from the pensions of employees of bankrupt steel, airline and now auto companies?

Are the huge profits in the bankruptcy scam the reason why, despite the largest industrial bankruptcy in U.S. history, Delphi has been assured $4.5 billion in financing, even in bankruptcy, from a group of lenders led by JPMorgan Chase and Citigroup Global Markets?

These questions demand answers and action.