Auto Strike? Not Likely Jerry Flint, 05.22.06
News is usually bad. That's what news is-- bad news. Occasionally you'll see some good news in the press, but as a rule, bad news rules. Think of two stories: "Couple Celebrates 50th Anniversary" or "Wife Axed on 50th Anniversary." Which one gets the play? That's journalism. Nowadays it's gotten to the point where the press is looking for the darkest interpretation of everything. Maybe that's because the Cold War is over so we don't have the Russians to scare us anymore, or maybe it's the 24-hour-cable reporters looking for things to fill up the airtime when they run out of cat rescues to cover.
This brings me to the stories about Delphi (nyse: DPH - news - people ), the largest auto parts maker in the world. Delphi is in bankruptcy, and there is some threat of a strike. The stories always say General Motors (nyse: GM - news - people ) will be crippled by a Delphi strike and thus pushed into bankruptcy.
Of course, anything can happen. Global warming could melt the ice caps and flood my tenth-story apartment on Riverside Drive in Manhattan. I could have a run-in with the wrong pigeon and get Asian flu. Or perhaps I will meet my end in one of those killer revolving doors that my local network news discovered.
But when it comes to Delphi and General Motors, here are things to remember that you don't read in your newspaper or hear on TV.
A strike at Delphi, if it comes, would be in June or later. That gives GM and Delphi time to stockpile parts. And the strike would come just as production is winding down in summer. So it would be 90 days or more before GM would be hurt. Ninety days without pay is tough, and it gives everyone time to mull things and reach a settlement.
The United Auto Workers union really doesn't want a Delphi strike that would cripple General Motors. The union's priority is to save those 100,000 GM jobs. The high-paying Delphi jobs are doomed whatever happens, and the union knows it.
It is even possible that Delphi could break a UAW strike. The company has plants in Mexico and China, and production tools can be moved. While this is possible, I'm not saying it is likely, because it raises another troublesome issue: that the UAW would be forced to tell its working members not to handle parts made by Delphi strikebreakers.
Other carmakers, not just GM, could be hurt by a Delphi strike. Everyone uses Delphi parts--yes, even Toyota (nyse: TM - news - people ). So there would be national pressure to end such a walkout.
Both Delphi and the UAW are playing a bluff game against General Motors, trying to get GM to pay the high wages and benefits of Delphi workers. GM executives should never play poker. They are bluffed easily, and it is quite possible they will be bluffed again. When GM announced the sale of half of GMAC for $14 billion, it signaled to the UAW and Delphi that the automaker has the cash to take care of the Delphi people. Of course, it would be better if GM's managers used the money to create new cars and trucks to save the business, but, as I say, they are bluffed easily. So it's reasonable to figure that if Delphi boss Steve Miller can make his wage cuts stick in bankruptcy court, GM will fork over the cash to make up some of the difference.
The point here is that there are things working against a Delphi strike, and even if there were a strike it wouldn't affect gm for a while. There would be pressures to end it if it started. Yes, there could be a strike, and it could possibly wreck GM, but that is a worst-case scenario. Other scenarios are more likely.
One more thing about Delphi. Today we play the blame game; it's common to blame managers for every failure and to call them incompetent or corrupt. I believe the company was well run despite its bankruptcy. You recall that GM created Delphi when it split off its partsmaking operations to cut costs. But to get a peaceful split GM made Delphi continue to pay those high wages and benefits. The costs added up to $76 per hour of labor. At the same time GM pushed the new Delphi for price cuts.
I figured it would take ten years to straighten that out, and Delphi has been gradually moving production to Mexico and China, while adding higher-margin business and non-GM customers. But the company ran out of time. The sharp decline in GM business, price-cut pressures and high labor costs did the company in.
The UAW is going to do some huffing and puffing and bluffing. But it will probably stop short of wrecking GM.
Jerry Flint, a former Forbes Senior Editor, has covered the automobile industry since 1958. Visit his homepage at www.forbes.com/flint.
