Delphi Files for Chapter 11 Bankruptcy

And what in the world, you may ask, is Delphi?

It’s a huge maker of auto parts, and its plight is typical of rust belt manufacturing firms.

John Butler Jr., a bankruptcy attorney for the company, said Delphi would attempt “some restructuring of its collective bargaining agreements” during the reorganization. Delphi’s contract with the UAW expires in October 2007.

Delphi also intends to try to scale back pension benefits, Butler said during Saturday’s hearing. “The current level of retirement benefits is unsustainable and will eventually sink the company,” he said.

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Based in the Detroit suburb of Troy, Delphi has struggled to make a profit since GM spun it off in 1999. It lost $4.8 billion in 2004 and nearly $750 million in the first half of this year.

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Like Tower Automotive Inc. and other auto suppliers who have recently declared bankruptcy, Delphi has struggled with the high cost of steel and other raw materials as well as U.S. production cuts.

But Delphi also blamed its spinoff agreement with GM for saddling it with high labor costs. Under the agreement, Delphi is required to pay GM wages of $27 an hour to most of its 24,000 UAW-represented workers. That’s double the level of competing suppliers, according to Standard & Poor’s Ratings Services. Delphi also had to pay full wages and benefits to 4,000 laid-off workers in jobs banks, which cost it $400 million each year.

In the heyday of the UAW, a cozy oligopoly of the “big three” auto manufacturers dominated the U.S. market, and had no incentive to resist the union’s demands (since of course they could pass the costs along to their customers).

In today’s globalized market, that simply isn’t possible. The union, like the auto makers themselves, was living in a fools’ paradise, with inflated wages, generous health care benefits and hefty pensions.

A lot of political activists, including quite a few on the Marquette campus, want to go back to that. But that’s impossible. And it’s not even desirable when one thinks of the people who have benefitted from this global competition: consumers and poor people in the Third World, who can now get manufacturing jobs and compete in world markets. It would be so much more convenient for the unions if they could not.