A labor strike at Delphi Corp. would weaken manufacturers, suppliers, unions and communities dependent on the North American auto industry.

The North American automotive industry is at a critical juncture where management, employees and financiers face tough and unique decisions. The turmoil from supplier bankruptcies, slumping vehicle sales and low share prices is the impetus of a major industry restructuring that will affect many companies. Restructuring will make the industry more globally competitive through improved capacity utilization, competitive compensation for salaried and hourly employees and productivity improvements.

However, if a labor strike at Delphi Corp. and/or GM comes to fruition, the entire automotive industry will be crippled, not just GM or Delphi. A strike would have far-reaching effects, even harming companies increasing production and employment in North America. All automakers depend on the well-being of key suppliers that also provide products to Delphi, GM and others.

Labor and management need to think two or three steps ahead to appreciate the negative ramifications of a labor strike. There is no doubt individual employees will be adversely affected. The critical point is a strike will not solve long term issues. A strike will exacerbate and hasten the overall deterioration of the North American domestic automotive industry.

It is clear in hindsight how the industry arrived at this point. Using a baseball analogy, the first strike occurred when GM spun off Delphi without addressing fundamental areas where Delphi costs were not competitive, particularly related to labor wages, benefits and retiree obligations. GM and Delphi did not fully address this issue over the past six years and as a result, Robert S. “Steve” Miller is forced to address the issue via a court restructuring plan.

Strike two occurred when GM, Delphi and the UAW did not reach an agreement to avoid Chapter 11 restructuring and transferred control to a bankruptcy judge. The judge will oversee the restructuring process that will support new labor contracts and help Delphi emerge from Chapter 11 as a viable corporation.

The domestic industry today is in the bottom of the ninth, with two strikes against the home team. As local unions consider a labor strike, the whole industry is poised to strike out. Delphi provides 13 percent of GM components. Interrupting the parts supply will shut down nearly all of GM rather quickly. Delphi also supports Ford and many other car companies. There is little room for a shut down, given the precarious financial state and the number of new product launches. A strike, shutdown or slowdown would interrupt the flow of parts and cash and force a number of suppliers, if not vehicle makers, into bankruptcy. Plante & Moran estimates that 15 – 20 percent of supplier companies are “one significant event away” from bankruptcy, an alarming statistic.

Many suppliers will have to sell assets and reorganize as smaller, leaner companies to recover. The reality of “bean counters” controlling the industry will increase if financial hedge funds and other groups that profit from financial re-engineering are able to leverage the industry’s weakened state. The “quick in and quick out” mentality of these investors ensures no long-term planning and vision, further weakening the industry and the UAW.

Sound reasoning by suppliers and UAW leadership can improve profitability, if the industry avoids striking out at the next pitch. The cost to some individual workers will be high. However, the UAW needs to take the long view, and remain stewards for the next generation of workers to ensure that manufacturing jobs in North America will still exist. The auto industry remains a powerhouse of growth and profit opportunities. The industry will be fundamentally changed when Delphi emerges from bankruptcy. The industry needs to make a collective commitment to make the transition with the least amount of cost.

As always, send a note on this or any other topic to ndekoker@oesa.org.

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