Following the October 8 announcement that Delphi, the nation's largest auto parts manufacturer, is filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code, one thing became clear: the road ahead is going to be bumpy not only for Delphi, but also for General Motors, the United Auto Workers and the federal Pension Benefit Guaranty Corp., the government-run entity that stands behind defined-benefit plans when they are terminated.
Experts at Wharton and elsewhere who follow the auto industry say Delphi's decision to file for bankruptcy was hardly surprising but nonetheless significant. Also important was GM's subsequent announcement, on October 17, that it had reached a tentative agreement with the UAW to cut the healthcare benefits of unionized retirees, reducing by about $15 billion the company's $77.5 billion in healthcare obligations to retirees. On the same day, GM announced a loss of $1.63 billion for the third quarter, its largest quarterly loss in more than 10 years. GM also said it was considering selling a controlling interest in General Motors Acceptance Corp., its highly profitable finance subsidiary, as part of an overall effort to strengthen the parent company.
The Delphi filing and the tentative GM-UAW accord set in motion a chain of events that may forever alter the relationship between America's Big Three carmakers and the UAW, and they underscore the degree to which globalization is exerting downward pressure on the wages and benefits paid to U.S. workers. The fates of GM, Delphi, and their workers and retirees are inextricably linked because GM has some level of responsibility -- it is not yet clear exactly how much -- for the billions in benefits owed to retirees at Delphi, which was spun off from GM in 1999. Ford and Daimler-Chrysler, adhering to a tradition of pattern bargaining, are expected to follow GM's lead and seek their own concessions from the UAW.
The news from Delphi and GM also drives home the point that the days of defined-benefit pension plans -- where retirees get a monthly check for a fixed amount in return for years of corporate service -- are under increasingly intense pressure, at least at firms like auto companies and airlines that are struggling to turn a profit.
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