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When Cutting Pay Doesn't Hurt - UAW/Delphi/GM

Like Doctor Evil, I get confused when talking about millions and billions - it's like I've been frozen for 30 years....

A week or so back I profiled the hand wringing at Ford related to their upcoming labor talks with the UAW,Dr_evil  noting Ford would seek to cut hourly labor costs by 30 percent, from about $71 to around $50, including wages, pension and health care - in an attempt to compete with the foreign automakers in the states who have annualized total comp cost of $85,000 per FTE vs. $148,000 for Ford.  (not a typo).

The optimists at Ford might have thought they would get a little help from the current round of talks between Delphi and the UAW, but it appears not to be.  The Wall Street Journal reports that while the tentative agreement reached by Delphi and the UAW has slashed wages on the surface, GM has agreed to bankroll the difference in lump sum payments to veteran workers to make it all go and help the company emerge from Chapter 11.  From the Journal:

"Specifics details of the labor deal weren't disclosed on Friday.  But the agreement is expected in include payments by GM  (a total of $300 to $400 million annually) to higher seniority workers to offset cuts in wages and benefits paid by Delphi.  Delphi could pay workers as little as $14 per hour in wages compared to the previous average of about $27 per hour."

The reason for the supplement to pay by GM?  GM has previously said its financial exposure to Delphi equals $7 Billion.  With that in mind, it seems reasonable to throw some money in the kitty to make the deal work.  Average wages come down, but the UAW can sell the deal to veterans by ensuring their current total comp (or something close to it) via the annual payments from GM.

Of course, that won't help Ford, who has banked all of its assets on the latest turnaround plan.  They desperately need to reduce their cost structure, and they won't have someone behind them writing checks.  Should be interesting to follow over the summer and fall.

Even with the supplemental payment, I would imagine any deal endorsed by the UAW that cuts the Delphi check of a long time employeee from $30 to $20 would be a tough sell.....


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