Taking a lead from Delphi’s blackmail, other big
US auto producers have stepped up their pressure on the UAW
to accept big cuts in auto workers’ wages and conditions. In October, General Motors struck a deal with UAW officials
that will save GM US$1 billion a year at the direct expense of its current and retired workers. In December, the Ford Motor
Corporation obtained a similar deal with the UAW, saving the company $850 million annually. Workers
ratified the two union deals with great reluctance — 61% of GM union members voted in support while only 51% of Ford's
union members did so.
The Ford-UAW deal, however,
didn't stop Ford from announcing on January 23 that it will eliminate 30,000 jobs and close 14 plants across the US
over the next six years. This followed a GM decision a few months earlier to slash 30,000 jobs and close a dozen US
plants completely or partially through 2008. GM used a short-term operating loss to justify its escalating attacks on its
workers. It announced in late January a loss of $8.6 billion for 2005. But as late as November 2005, GM still had $19 billion
in cash on its balance sheet. Ford actually made a profit of $2 billion for 2005 despite a pre-tax loss of $1.6 billion for
its North American operations.
Delphi is
flagging the risk of bankruptcy to pressure its current and retired workers to accept terms that they wouldn't agree to otherwise.
However, according to the information Delphi provided in October as part of its “bankruptcy”
filing, it still had $1.6 billion of cash in hand in addition to a $4.5 billion credit line from the world’s two biggest
banking firms, Citigroup and J.P. Morgan Chase. Would these financial vultures give a really ailing firm such a huge credit
line?
Delphi
management also made clear that once it emerges from “bankruptcy” in 2007, it will propose giving its top 500
managerial employees $88 million in cash bonuses, with the top four managers sharing $8.9 million. Delphi’s
executives continue to be eligible for generous severance packages, which could amount to a total pay-out of $145.5 million
if they were all terminated. Delphi's “bankruptcy
filing” is essentially a scheme to force its present and former workers into financing its owners' profits. If business
is really so difficult, shouldn't the shareholders share the pain by accepting little or no profit for a while?
Delphi
isn't the only company that is using the “bankruptcy filing” trick. Nor will the Delphi
saga affect only Delphi workers and retirees. Through
many earlier struggles, auto workers have won among the best conditions among US workers. Such gains had trickled down to
workers in other industries. Now, the “give-backs” being blackmailed out of auto workers are likely to be used
as models for similar “give-backs” by bosses in other industries.
The Chapter 11 hammer
Assisted by the 1978 Bankruptcy
Act, US corporations can use the pretense of bankruptcy as an excuse to seek “protection” from certain creditors
— mainly their own workers — so that these corporations can ruthlessly slash their workers’ pay, entitlements
and pensions. Until recently, this weapon was held largely in reserve. But since 1998, beginning with a number of steel companies,
an increasing number of US firms, have used Chapter 11 to void their labour contracts.
Though the Chapter 11 provision was first created in 1938 to deal with genuine bankruptcy cases, the 1978 law turned
it into a potential corporate tool to screw workers. In theory, only those companies on the verge of collapse can file for
such a protection. In reality, a company whose profit is squeezed can take this route to force its workers and/retirees to
fund its way back to satisfactory profitability.
Writing for the October
23 Washington Post, steel industry analyst Mark Reutter revealed that some 150 major US corporations are currently
in some stage of bankruptcy reorganisation, including four leading US airlines. Reutter
observed that Chapter 11 “permits management to petition the court to void labor contracts and substitute whatever terms
it chooses. Properly stage-managed and set in motion, the restructuring process can steamroll the union, peel away retiree
benefits and dump pension obligations onto the PBGC” — the US government’s Pension Benefit Guaranty Corporation.
{More federal corporate welfare—that doesn’t get reported or tallied as such—jk}
Pension attack
The PBGC plays
the role of a pension provider of the last resort — promising to deliver a very modest payment — when a retired worker’s last
employing company no longer wants or is capable of honouring the company’s pension obligations. PBGC helps ease the
risk of social instability that might otherwise be caused by desperate pensioners. [Funds
were once required to be set aside to meet future pension obligations. Through
regulatory changes these funds are not required to be securely sequestered—jk]
While younger
firms focus on attacking their current workers, their more established counterparts seek to target their retired workers as
well. The corporate bosses seek to create the impression that health care and pension provisions are “welfare”
extras they provided out of their generosity. It's nothing like that. Health care insurance and company pensions are part
of a remuneration package of which the weekly wage is only a component part. Pension and health care insurance for retired
workers are merely deferred remuneration for work performed by workers while they were in active service. Any attempt to reduce
or renege in honouring such payments amounts to increased exploitation of labour. But
this is exactly what more and more corporate robber barons are seeking to do. Standard and Poor's (S&P) credit rating
agency observed in a January 27 note to its clients that pension cutbacks “have become a part of the US business landscape” and that this practice is being extended to the telecom and technology sectors “both of which are, on
the whole, fiscally sound”. This is clear evidence that the cutbacks aren't prompted by a company's genuine financial
problems but as a means to boost profits.
A key cutback is
through replacing “defined benefit” pension schemes by “defined contribution” ones. In the former
case, retirees receive a guaranteed income, adjusted for inflation. But no such adjustment is allowed for in the latter case,
leaving benefit recipients with a steadily declining real income. Even for the remaining defined benefit schemes, there is
a growing shortfall in the funds actually set aside to back such obligations. The underfunding of the defined benefit schemes
of the S&P 500, which lists the stock prices of the top 500 US
firms, was $164.3 billion at the end of 2004. S&P expects the shortfall to grow to $182 billion for 2005.
Reutter gave the
following description of how the owner of the Bethlehem Steel Corporation used the PBGC to make a profit out of “bankruptcy”:
“Some 95,000 retirees and dependents lost their health-care plan in 2003 when the bankruptcy judge sold the company's
assets to International Steel Group, a company controlled by billionaire financier Wilbur L. Ross. “Meanwhile, the PBGC
was left with the responsibility of paying $4.3 billion in underfunded Bethlehem
pensions over the next 30 or so years. Because of the less generous terms of PBGC's pension formula, some steelworkers lost 50 percent of their expected pensions as
well as their health benefits. “Earlier
this year, Ross sold International Steel to London-based Mittal Steel Co., picking up $267 million in profit on the sale.
Ross's investment fund has since amassed $4.5 billion, some of which he plans to use to make acquisitions in the auto parts
industry, he said recently. One of his possible targets? Delphi. He has made it clear, in recent interviews,
that he is carefully watching the company and its Chapter 11 reorganization.”
The PBGC now suffers from
a long-term deficit of about $23 billion. A December 16 report on CNNMoney.com attributes this to the termination of several
large pension plans in the airline Band steel industries. The current cutbacks in the auto industry are set to make the PBGC
shortfall even worse.
