Delphi:
Another Phony Bankruptcy

Oct 10, 2005

Delphi Corporation, world’s largest supplier of automotive parts, declared bankruptcy for its U.S. unit on October 8. As stated by a Reuters reporter, "The auto parts maker is not cash-strapped but is filing to take advantage of current, more lenient bankruptcy rules. ...It is also filing to pressure its unions to come up with wage concessions."Indeed, the entire Delphi saga is little more than an elaborate maneuver by General Motors to violate its promises to workers, to escape from GM’s pension and benefit obligations, reduce 34,000 U.S. hourly workers to near-poverty conditions, and threaten every U.S. auto worker with the same treatment. Of course, immense rewards will go to executives who successfully captain and steer the maneuver, and the largest stockholders will reap the ultimate benefits.

If it were only a matter of manufacturing efficiency, GM would not have spun off Delphi in l999. Delphi’s many parts plants contributed at least 12 billion dollars’ worth of goods to GM. It’s far easier to manage such large, complicated production systems if all the various parts are under one management with one set of standards and one communication system. It’s more efficient.

But GM was willing to accept inefficiencies–that is, to pay extra–in order to dump some of its debt, in particular, its debt to the workers. So they "spun off" Delphi, pretending under a legal fiction that it was "independent." It was a strange kind of independence, to be as completely integrated as ever in GM’s manufacturing process–but claiming independence (and poverty) in relation to union contracts.

In fact the independence was so completely fictitious that only wheeler-dealer accounting could make Delphi appear to be a viable company on its own. An SEC investigation and a class-action lawsuit are under way, regarding that accounting during 1999-2001.

To complete the maneuver, Delphi this year hired vulture capitalist Robert "Steve" Miller, and Jack Butler of the legal firm Skadden, Arps.

Miller previously guided Federal-Mogul Corporation into bankruptcy to protect its shareholders from liability in asbestos lawsuits. And as CEO of Bethlehem Steel, Miller put it into bankruptcy, decimating retirees’ pensions, destroying their health care, cutting active workers’ jobs, wages and benefits. He then sold the leftovers, which, as part of the new Mittal Steel, were instantly profitable.

Jack Butler was lead counsel for Kmart when Kmart dumped its own debts, leaving its workers and its common stockholders high and dry. Kmart then came out of bankruptcy and (miracle of miracles!) found it had enough cash and credit to immediately buy up the much larger Sears Roebuck empire!

Speaking of cash and credit, Delphi has a consortium of the very biggest banks committed to supporting it during the bankruptcy–banks like JP Morgan, Chase and Citigroup, Inc. These are not exactly institutions which buy into losing propositions!

While GM and Delphi make sure that newspaper accounts are full of frightening statistics, the Kmart and Bethlehem Steel examples showed how much these sorts of statistics are worth. Certainly the banks aren’t frightened! Nor is GM, which is making no detectable effort to find alternative suppliers.

Now that the steel industry, the airline industry, and Kmart have proof-tested the bankruptcy game, all companies understand how it can be done. And so far, what has any executive seen, that might hold them back? Only in the case of Northwest Air has any group of workers tried to actively stand up in their own defense–and that group was too small to prevail.

Neither courts nor union negotiations behind the scenes have made any difference to corporations determined to get out from under what they owe the workers. The only option left untried in the workers’ defense is the option which first won pensions, benefits, and higher wages: collective action on a massive, massive scale.