Who Is To Blame for Auto Industry’s Woes?

In an echo of the past, the Big Three automakers claim they are going broke and need concessions to save them.

Management focuses on the cost of its high-paid workers. Wages, pensions, and health care costs are cited repeatedly as the main reasons for the Big Three’s declining competitiveness.

While it is true that the U.S. auto industry’s bottom line is hurting, it is also true that other factors—beyond workers’ control—are helping drive the companies downward. Mismanagement, lack of innovative design, over-reliance on SUV sales, and the cost of private health care and pensions are all big factors.

Having trimmed their workforces by spinning off their parts divisions, automakers then demand big price cuts from those parts suppliers, so that Delphi, American Axle, and Visteon are “forced” to demand concessions from their workforces.

The question auto workers should ask is: Why should we be expected to pay for GM’s or Delphi’s—or any other corporation’s—bad business decisions?


Workers have no control over—and bear no responsibility for—management’s decisions about what to buy, how to spend research dollars, and what to market. Workers also bear no responsibility for management’s failures in their accounting responsibilities.

For example, the Securities and Exchange Commission is currently investigating Delphi’s accounting practices. Management admitted that between 2000 and 2003 it enhanced the corporation’s earnings through “irregularities” with one of its suppliers, EDS.

Quality is another area in which management makes bad decisions. At plant-level “town hall” meetings, workers inevitably point to poor quality—bad parts coming in from non-union suppliers, foremen accepting parts that should be scrapped, or management’s prioritizing speed above quality.

Ford alone spent $500 million in recalling bad parts in the first three quarters of 2006.

While concessions are demanded from workers, management has found bankruptcy a convenient tool to both restructure corporations and reward itself.

Delphi is the current example. Company executives claimed a loss of $6.3 billion—on their watch—over the last seven quarters. But still, Delphi is not on its last legs: it has $1.6 billion in cash on hand and a $2 billion line of credit.

Delphi’s offer to the UAW included cutting wages from $26 an hour to $9, paying more for health care, freezing the pension plan, eliminating cost-of-living raises and profit sharing, reducing vacations, and granting Delphi the power to close down plants at will.



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In a confidential memo obtained by the Detroit News, Delphi outlined its plan to close down several product lines and plants to focus “global dominance” on electronic and safety products.

At a rank-and-file meeting in Grand Rapids, Michigan on November 6, one woman from the Delphi East plant in Flint spoke about how much of the floor space in her plant is already empty. Management has no future product lined up.

While planning on shutting down five plants, including Delphi East, the memo identifies Motorola Automotive as a merger target.


According to the New York Times, once Delphi emerges from bankruptcy in 2007 or sells its assets, managers propose to pay $88 million in cash to Delphi’s top 500 employees. The top four (not including CEO Steve Miller, who very publicly slashed his own salary) would receive more than 10 percent of the total, $8.9 million.

Starting January 1, 2006, Miller and other top executives have agreed to take a 10-20 percent salary cut. But even with these cuts, the top four Delphi executives (excluding Miller) would receive a total of $3.1 million a year plus incentive bonuses.

Managers are also giving themselves generous severance packages. If all the company’s executives were terminated and took their severance, it would cost Delphi $145.5 million.

Delphi spokeswoman Claudia Baucus has argued that the company must retain top executives because they possess knowledge of Delphi’s business that is not easily replaced.


It’s no secret that the price of for-profit health care in the U.S. is going through the roof, and that this has an impact on U.S. auto companies. Between health care costs and a weaker currency ($1 Cdn is equal to US $.84), Canadians working for the Big Three are an average of $10 an hour cheaper than U.S. workers—$20,000 per year.

As a result, one out of six North American-produced cars and trucks is assembled in Canada.

Given the built-in cost advantage of a Canadian-style health care system, it’s strange that the UAW would agree to take $1 billion per year in up-front health care concessions at GM and then let GM off the hook with only a weak promise of “an unprecedented effort to improve the affordability, accessibility, and accountability of the U.S. health care system, including the pursuit of universal coverage.”

The rub is that UAW officials accept management’s claims of poverty, ignoring factors like mismanagement and fiscal irresponsibility. They fail to see that the union must hold the line on concessions—which won’t save jobs anyway—to prevent freefall throughout the industry. The assumption seems to be that this process of concessions, bankruptcy, and restructuring is inevitable.

Steve Miller commented that companies had made promises they just couldn’t afford to keep, saying, “All of us have been caught short by fast-changing economics.”

But when workers have no say in how their companies are run, who is responsible for this lack of foresight? Working people need to challenge the rules of the game, and fight these concessions tooth and nail.