October 18, 2005
Interview With Delphi Boss
Yesterday's Wall Street Journal featured an interview with Delphi's boss.
Here is the link and brief excerpt:
Reassembling Delphi (WSJ Subscription Required)
WSJ: Can you elaborate on those forces?
Mr. Miller: Globalization is a fact of life these days. What has been brought into sharp relief is the differing value the global market places on knowledge workers versus basic manufacturing workers. I was struck by what I saw when I visited our Delphi operations in Mexico last week. Our average hourly worker makes about $7,000 a year, while the average salaried worker makes about $35,000 a year. A spread of five times. The same spread, or wider, exists in all low-cost countries. The implications for America are enormous, and it boils down to this. If you want your kids to enjoy the great American dream, get them a good education. The days when manual unskilled labor can deliver a $65-per-hour wage are disappearing.
My recent experiences have been with industries that are undergoing profound change What they have in common is a social contract, worked out over the past half-century with strong centralized labor unions, to elevate their work forces with elaborate defined-benefit retirement programs. Back in the days when you worked for one employer till age 65 and then died at age 70, and when health care was unsophisticated and inexpensive, the social contract inherent in defined-benefit programs perhaps made some economic sense.
Today, defined benefit programs are an anachronism. First off, they force people to stay with one employer, even though we have a much more mobile and flexible population these days. Second, the notion of having all your retirement eggs in one basket -- your employer -- is a concentration of risk that is simply inadvisable for anyone in today's fast-moving economy. Finally, people are living longer these days. Of course, that is a good thing. But the question is, how can we afford it?
October 15, 2005
Chapter 11 Weapon
FInancial Times Columnist John Gapper blows the Delphi Chapter 11 wide open in his most recent column. I provide a link and excerpts below:
John Gapper: The Danger of Rewriting Chapter 11 (Financial Times subscription required)
Steve Miller, chief executive of Delphi, was in New York this Monday to explain why he was putting the Michigan automotive parts supplier into Chapter 11 bankruptcy. “We are broke,” he said, holding his hands in the air. “I am sorry to be the one delivering that message.”
Mr Miller did not look very sorry. In fact, he seemed like someone whose bargaining position with his employees had just become a lot stronger. Instead of having to wheedle unions into accepting cuts in pay and benefits for Delphi’s 34,000 hourly-paid US workers, he can threaten them with the company defaulting on its defined-benefit pension plan.
Organised labour, meet organised capital. Chapter 11 of the Bankruptcy Code used to be regarded as a bizarre US arrangement allowing a troubled company’s managers to stay at the helm and restructure instead of being kicked out by the creditors. Eastern Airlines went into Chapter 11 in 1989 and remained there for two years losing money before collapsing.
These days, managers and creditors are often on the same side from the start. Chapter 11 has become a device for reasserting management fiat over workers with the backing of bankers. Financiers have forced steel industry employees who were used to being highly paid to accept lower wages and fewer benefits. Delphi’s Chapter 11 filing suggests Detroit’s workers and retirees are next in line.
The way that Delphi is handling its bankruptcy shows how things have changed. David Skeel, a University of Pennsylvania law professor, says the interests of managers and creditors have been aligned by two things: companies are supported – and controlled – with specialist financing and managers are given very large financial incentives to act rapidly and to take tough decisions.
All of this carries a price. They say you should not visit a sausage factory if you like eating sausages and in this case the ingredients being ground up for profits are health and (perhaps) pension rights. It does not take a union activist to be disturbed by the prospect of Delphi workers losing benefits that they dedicated their lives to gaining by working there.
The stark contrast between workers’ losses and managers’ gains was one reason for changes to Chapter 11 in the bankruptcy reforms that come into effect next week. The new law bars companies from paying managers Chapter 11 bonuses and limits the time during which they have the sole right to propose a restructuring plan. Managerial prerogative, as well as wealth, is taking a haircut.
September 19, 2005
Most Disturbing Quote of the Week
On the Crisis in the U.S. Airline Industry
"There's nothing wrong here," says Severin
Borenstein of the University of California at Berkeley, an economist
who studies the dynamics of airline deregulation. "From a consumer
perspective, prices are low. Levels of service rebounded quite nicely
after 9/11. There's no sign of inadequate investment. We should stop
worrying and learn to love bankruptcy, which is simply the transfer of
assets from equity holders to debt holders."
From today's Wall Street Journal For US Airlines, A Shakeout Runs Into Turbulence ($ubscription Required)
September 18, 2005
The Financial Times takes a look at the US Auto Industry and asks what the industry's current crisis means for both labor unions and the industrial U.S. I post a link and excerpts below:
Dented Detroit Puts Union Gains Under Pressure (Financial Times $ubscription Required)
In boardrooms and union halls across Detroit, a realisation is spreading that the city’s motor industry is facing one of its biggest challenges since Henry Ford began producing the Model T on Piquette Avenue 97 years ago.
General Motors and Ford Motor, the two biggest Detroit-based carmakers, some of their key parts suppliers and the United Auto Workers union are weighing up painful decisions that may determine who survives and who crashes in an overcrowded and ferociously competitive market.
July 14, 2005
Germany to Be the Vanguard of Moving the EU Closer to the US Economic Model? Political and Business Climate Shifting
It's looking like Germany will take the lead in moving the EU and continenntal Europe towards greater liberalization of its markets, particularly the labor market.
Today's Wall Street Journal features an article on East German born Angela Merkel and her free market philosophy. Ms Merkel is considered a serious contender to be the next leader of Germany. From the article Free Market Voice in Germany, (subscription required):
Polls show Ms. Merkel's Christian Democrats leading Mr. Schröder's party by more than 15 percentage points before an election brought on by Mr. Schröder's decision to call for a vote of no confidence in himself after losing an important local election. Although the election date, expected in September, has yet to be scheduled, her party announced its platform this week, and Ms. Merkel is now filling in the details of how differently she would lead Germany from Mr. Schröder.
In the interview, Ms. Merkel eschewed explicit talk about whether a Merkel-led government would change Europe's power balance, but she said an alignment in favor of more-flexible labor markets "could mean that Europe works better again." She continued: "We in Europe are unfortunately at a point where a great many decisions aren't being reached, and a standstill is the worst thing for Europe. For me it's not about the balance of power, but about an effective Europe that can reach the goals it has set itself."
On the business end the VW scandal that has been blogged about here (for past blogs on the VW scandal click the Volkswagen category on the left hand sidebar) is merely the setting for a re-examination of Germany's co-determination policy which does not mesh well in a world currently converging towards greater market liberalization. Today's business press features more articles and analysis on the VW Scandal.
The NY Times: From a Scandal Springs a Chance for an Overhaul at Volkswagen (registration required)
"If we cannot survive here at Volkswagen," he said, summing up his remarks, "then industrial Europe is going to die."
While Mr. Hartz has not been accused of any wrongdoing, he symbolized the convoluted web of ties between Volkswagen's management, union leaders, employee representatives and government officials, which critics say is rife with opportunities for graft and abuse.
The exit of Mr. Hartz and the ascendance of Mr. Bernhard, analysts say, could augur a new era at Volkswagen - one in which the management has more leverage over workers and unions, and shareholders have more say in the operation of the company, Europe's largest carmaker.
"It's a real chance," said Jürgen Pieper, an auto analyst at Metzler Bank in Frankfurt. "The biggest problem for investors has always been the enormous power of the unions. Slowly, steadily, Volkswagen may become more market-oriented, more profit-oriented."
John Gapper offers the following in German System that No Longer Works from today's Financial Times (subscription required):
You might have thought that he could live without suggestions that VW bribed members of its 67-strong works council by paying for their foreign holidays and prostitutes. But it has led to the departure of Peter Hartz, VW’s director of personnel, and given Mr Pischetsrieder a chance to crack into the company’s ossified structure of labour relations.
Looking at VW’s supervisory board, with its 50 per cent labour and union representation and seats for politicians from the state of Lower Saxony, which has an 18 per cent stake, it is not surprising that VW has problems taking tough decisions. The board is so replete with insiders and so painfully democratic it seems a wonder any cars get made at all.
As Britain’s automotive industry foundered on the rocks of strikes and low productivity in the 1970s and 1980s, we envied Germany’s way of persuading workers to co-operate. An industrial democracy movement sprung up and unions negotiated with the government and businesses in the awfully named – and awful – tripartite era. It did little good.
So it is strange to witness – as the remains of Rover are sold once again – VW’s travails. Co-determination helped VW to succeed for decades but something that used to have a living, breathing purpose has turned into a relic. In place of worker participation, there is union bureaucracy. In place of shop-floor involvement, there is expense-account shopping.
This suggests that even modest reforms of co-determination to allow more flexibility – as German employers want – would help. The shenanigans at VW are an extreme case but any company that allows itself to become co-opted by insiders runs the same risk. Twenty years ago, as Britain flirted with tripartism, Germany wrote the parity of workers and shareholders into federal law. It is time to think again.
June 16, 2005
GM - UAW Showdown Looms
With the South California grocery strike and the troubles faced by unionized airline workers recently it was only a matter of time before the US auto industry took the offensive in its relations with the United Auto Workers.
In an extended interview the union's leader, Ron Gettelfinger, said that while he was willing to make concessions to help General Motors within the terms of their existing contract, the two sides were not yet close to reaching an agreement. G.M., he said, had not presented him with enough information to convince him of the severity of the financial situation.
While many workers and local union officials say they are willing to consider concessions to help G.M., they also express belief that management has not indicated it would make its own sacrifices. Workers and local union leaders say Mr. Wagoner needs to take a step like that of the Ford Motor Company's chief executive, William Clay Ford Jr. Although Ford earned $1.2 billion in the first quarter, Mr. Ford said in April that he would accept no compensation of any kind until the company's automotive profits improved
June 15, 2005
GM Playing Hardball with UAW
From the NY Times: G.M. Board Wants Cut in Benefits
DETROIT, June 14 - The board of General Motors has given the United Automobile Workers union until the end of the month to agree to cuts in its members' health care benefits, union officials said Tuesday.
Many local union leaders have said they were willing to make concessions, but not to the extent that G.M. was seeking. If the union and the company cannot agree by the end of the month, G.M. is threatening to make the cuts on its own. Such a step could lead to a breakdown in G.M.'s relations with the union and possible strikes.
"Our strongly preferred approach is to do this in cooperation with the U.A.W.," he said, adding, "but either way, it's crystal clear that we need to achieve a significant reduction in our health care cost disadvantage and to do so promptly. We're committed to do that."
May 18, 2005
Is the US Auto Industry in Decline?
Tuesday's WSJ has a must read editorial that really puts what is happening in the US auto industry in perspective.
We read alot about Ford and GM plant closures (and of course the financial problems of both firms) but it is never placed in the context of what is happening with the US auto industry as a whole. But that's another problem.
Do we count the Hyundai and Toyota plants that are popping up all over the South (and the suppliers that feed them) as part of the US auto industry? Paul Ingrassia in his WSJ editorial offers some numbers:
"And expanding they are. Toyota is about to open
its sixth U.S. assembly plant (in Texas), and has plans to build a
seventh in a place to be determined. South Korea's Hyundai opens its
first U.S. assembly plant, in Alabama, this month. Twenty years ago
there were just two U.S. assembly plants that weren't owned by
Detroit's Big Three. Now there are 23 in the U.S. and Canada (mostly
the U.S.). These 23 account for a third of the vehicles built in the
two countries, which long have had a free-trade pact for autos. And
assembly plants are just part of this buildup. "Foreign" car companies
have engine and transmission factories in America's heartland,
engineering centers near Detroit and design centers in Southern
California. Nearly 25% of U.S. and Canadian automotive employees now
work for companies other than GM, Ford and Chrysler, Automotive News
calculates, up from less than 7% in 1990. Expect that percentage to
None of the foreign auto plants in the United States are unionized (I assume its the same in Canada but maybe a reader of this blog will know for sure). This is a major problem for the United Auto Workers union, their members and also the non-union workers in these foreign owned plants.
The UAW's inability to organize these new foreign owned plants highlights the problems facing all unions. Here are links to a few old Detroit Free Press articles on unsuccesful organizing drives at these plants:
ORGANIZING IN ALABAMA: UAW official has a secret plan to convert nonunion Mercedes plant
MIGRATION FROM THE MOTOR CITY: UAW a hard sell in Southern comfort
Factory workers living the good life snub union representation
May 03, 2005
AFL-CIO Announces Lay-Offs
WASHINGTON — The AFL-CIO said Tuesday that it plans to lay off one-fourth of its 420 employees as part of a restructuring that will shift resources to organizing new members and political mobilization.
About two-thirds of the 106 layoffs will occur at the downtown Washington headquarters two blocks from the White House where four departments are being merged with others.
Johnathan Tassini's blog, Working Life, has more information on the layoffs.
Jordan Barab at Labor Blog makes the (correct) argument why the move to cut the Health & Safety department is flawed.
No matter what Sweeney does it isn't going to be enough to satiate the so-called dissident internationals. We are witnessing the slow unraveling of the AFL-CIO.
April 25, 2005
Tension in Germany over Future Economic Course
Two articles in today's Financial Times caught my eye today.
In the first article the head of the organization "Invest In Germany" threatened to resign because of statements made by members of the German government. What could these politicans have said to cause such a reaction?
In parliament late last week, Mr Müntefering stepped up his attack against "anti-social" business leaders who cut jobs while increasing profits.
"There are reasons to think about regulations that do not favour people making quick money and moving on," Mr Eichel said.
The article goes on to state that opinion polls show German society to be more in tune with the thoughts of these politicians than German business leaders.
In the second article the head of Siemens, an importan German firm, called for liberal reforms in government policy to encourage business failure:
As Europe's political leaders should reduce the number of support mechanisms for poorly performing businesses, so making it easier for them to fail, an influential executive at Siemens, the German industrial giant, h said.
In a speech in Brussels at the weekend, Edward Krubasik, a senior executive credited with introducing a sharper commercial focus to Siemens, said more "run-down, old businesses" in Europe should be allowed to restructure or disappear.
While not naming any companies among those he said should be allowed to fail, Mr Krubasik almost certainly had in mind Alstom, the Paris-based engineering company which came close to bankruptcy in 2003 but was rescued by the French government.
I wonder what this spells for the future of the German economy. Will German business leaders succeed in bringing about more liberal reforms in the German economy or will German voters and workers remain unconvinced by German business economic cures?