Globalization and the rust belt

In an earlier post we discussed GM parts supplier Delphi's problems, stemming from global competition. Now Delphi is about to enter Chapter 11 bankruptcy, with executives preparing golden parachutes and to loot the pension fund. CEO Miller offers to protect the pension if workers will agree to work for 30%(!) of previous wages. Sounds awful all around. Of course, union workers were previously making $65 per hour including benefits. It doesn't take a genius to understand that there was no way that could continue in the face of economic globalization. Even $20 per hour sounds high compared to wages you-know-where.

See here for discussion of how Delphi's bankruptcy might impact CDO markets.

Delphi Corp. Chairman and Chief Executive Officer Robert S. "Steve" Miller said the big auto supplier, which filed for bankruptcy protection Saturday, could still save its pension plan for U.S. hourly workers, but only if unions agree to work for about a third of their old pay and benefits.

Mr. Miller, in an interview yesterday, also said he would take a "significant" cut in his $1.5 million salary, "if that's what is needed." And he defended moves by Delphi to improve severance packages for its top 21 executives.

...Delphi's sweetened executive package included stock for 600 executives around the world and bigger cash bonuses for top U.S. executives. Severance packages were extended from 12 months to 18 months.

...Those moves were blasted by United Auto Workers union President Ron Gettelfinger on Saturday, who called them a "disgusting spectacle." The UAW represents 25,000 active Delphi employees and about 10,000 retirees.

Delphi's decision to seek bankruptcy protection comes at a time of enormous stress for the UAW, which is also under pressure to make wage and benefit and job protection concessions at GM.

Under Delphi's proposed schedule, it would make offers to its unions by Oct. 21. If no agreements are reached by Dec. 16, the company would request to terminate the contracts in court on Jan. 17.

The UAW's decision to reject Delphi's demand to cut UAW wages and benefits contributed to Delphi's decision to seek Chapter 11 bankruptcy protection. The average union worker's wage-and-benefit package at Delphi is about $65 an hour, according to Delphi. Last week, just days before Delphi filed, the UAW rejected demands to cut workers' pay package to $16-$18 an hour.

The UAW, in a statement posted to its Web site yesterday, expressed disgust at Delphi's decision to sweeten executive severance packages, and offer executives as much as 10% of the restructured company and $90 million in bonuses.

Meanwhile, the WSJ points to boom times in Nagoya (home to Toyota, among other multinational giants), where Japanese manufacturers have climbed the value chain while outsourcing lower end production to China. See also this Economist survey on Japan.