The Delphi Dilemma

I am following the recent decision of Delphi to declare bankrupcy with interest because it has ramifications for all of us. This company was spun off by GM about 9 years ago and many of the employees were originally with GM and as a result made United Auto Workers wages. This would have been fine if the auto industry had kept going well for GM which used Delphi to supply its auto parts, but Japan cars were there to prevent that. Delphi retirees were the beneficiaries of previous union negotiations which GM capitulated on and provided defined benefits which said that the company would pay the retired workers an amount based on their years of service for life with cost of living increases. Defined benefit retirement is great if the source of the retirement check is growing and financially stable. This does not describe either GM or Delphi right now. So, Delphi has now declared bankrupcy and given the union a choice. They can capitulate and accept massive layoffs of the current work-force along with 60% wage cuts for those remaining or a renege on the retirement package of the retirees. Delphi workers now average $25/hour which is really $65 when benefits are factored in. That is way above the prevailing rate worldwide. So, what we will be seeing is a prelude to the choice the government faces when it finally decides to face up to the generational conflict which will arise when it addresses the Social Security and Medicare demographic problems. We will either make the old folks take less or the young workers pay a lot more--or more likely, both. If you are a Delphi worker or retiree, you are in serious doo-doo right now and the rest of us are following along rather quickly.

As far as retirement plans go, most companies have now moved to what is known as defined contribution plans where the workers pay into an account and when they retire, they get the money and are responsible for providing for their own retirement. This places more of an onus on the worker, but it has a really great advantage in that nobody can take it away later.