Delphi Gets a Deal (with the UAW)

Hidden amidst the headlines in late June of terrorism plots in the UK and Obama's out-fundraising Hillary was a critically important story to come out of Detroit. The news -- whose importance to the automotive industry and US manufacturing in general cannot be overstated -- was that Delphi has struck a deal with the UAW to reduce hourly wages by some 30-45% and to reduce other union and employee related costs over the long-term. As part of the agreement, union workers leaving Delphi with 10 more years experience will get a "$140,000 buyout ... [and] those with fewer than ten years get $70,000".

According to The Detroit News, "the deal gives veteran workers cash payouts in exchange for wage and benefit cuts, clears the way for Delphi to emerge from bankruptcy and ends the threat of a strike that could have crippled General Motors Corp." According to one source quoted in the article, "this is precedent-setting within the supplier base ... any of the parts suppliers that are organized by the UAW will have some interest in what was done as a part of this bargaining. They will look at this as a pattern."

Even though to many on both sides of the union fence, the Delphi story has a happy ending, in my view, the power of unions in American manufacturing is still higher than many outsiders think. But smart firms are learning how to gain leverage and reduce the business and supply risk that unions pose. For example, all of Caterpillar's white collar workers are dual trained to take positions on the manufacturing shop floor should a union strike. From a Spend Management perspective, I believe that procurement organizations need to actively evaluate the supply risk that union-organized suppliers pose based on the cost of potential supply disruptions, factoring in these potential risks into a total cost equation.

Jason Busch

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