The Wall Street Journal-20080116-Two Heroes of Detroit
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Two Heroes of Detroit
Detroit -- The Detroit Auto Show's media preview this week comes at a most difficult time for the hometown companies. The price of General Motors stock is just one-third of what it was at the beginning of this decade. During this same time period Ford has had three different CEOs. Chrysler has had three different owners since 1998. Nonetheless, executives of all three companies have posed for pictures alongside their latest vehicles, and talked earnestly about how they plan to right their respective ships.
If they do manage to do it, they'll owe a big debt to two people who now sit on the sidelines. One man's name is Miller, though here in Motor City his name often is pronounced "mud." The other man is the president of the United Auto Workers union, long the bane of the Detroit Three (which are no longer the Big Three now that Toyota has passed two of them in sales). Ironically, these two men don't have much use for each other. But over the last couple of years they both took actions that were controversial and courageous, despite considerable risks to their reputations.
R.S. "Steve" Miller, age 66, is chairman of Delphi Corp., one of the world's largest makers of automotive components. Mr. Miller made his reputation as one of the architects of Chrysler's remarkable turnaround in the early 1980s. He left Chrysler a decade later, and thereafter forged a career parachuting into deeply troubled companies that included Waste Management, Federal Mogul and Bethlehem Steel. He couldn't save Bessie, but most often he succeeded in giving his ailing corporate wards a new lease on life.
In October 2005, just four months after leaving a comfortable retirement to take the helm at Delphi, Mr. Miller shocked American industry by plunging Delphi into Chapter 11 bankruptcy proceedings -- one of the largest business bankruptcies in history. Delphi had about $26 billion in annual sales at that time. More than half were to one customer, General Motors, which had owned the operations that form Delphi until 1999, when it spun them off as an independent company.
What made Delphi's bankruptcy so notable was not only the size of the company, but also Mr. Miller's public rhetoric. He announced that Delphi's workers had to take a cut in cash wages from $28 an hour to about $9 an hour. He didn't leave much room for negotiation. Delphi's mounting losses, Mr. Miller declared, brought "into sharp relief the different value the global market places on knowledge workers versus basic manufacturing workers." In short, he stated baldly that the day of the highly paid, low-skilled job was over.
Such sentiments had been voiced privately by many Detroit executives for years, but none had dared go public. It's easy to understand why.
Mr. Miller was vilified by Ron Gettelfinger, president of the UAW, as a "bandit," among other things. Executives at GM, which would owe Delphi workers billions if the parts-maker went belly up, weren't much more polite.
Last June, after 20 months of often-acrimonious talks, Delphi and the union finally struck a deal. Workers' hourly pay would drop by up to half, to between $14 and $18.50 an hour. To ease the impact, workers could get buyouts or "buy downs" -- temporary compensatory payments -- of up to $140,000, depending on seniority. GM itself would provide much of the money, about $7.5 billion in all. It was a bitter pill for Delphi workers. Of course, the company's shareholders had suffered too, by seeing their investments wiped out.
On the heels of the Delphi agreement, Mr. Gettelfinger led the union into its quadrennial contract talks with the Detroit Three -- starting with GM. He hired a Wall Street bank, Lazard Ltd., to analyze GM's financial condition, and to assess objectively whether saving GM meant sacrificing such UAW shibboleths as full-freight health insurance, guaranteed medical benefits for retirees, full pay for laid-off workers and the like. The answer, of course, was yes.
Last fall the union reached historic deals that shifted retiree health benefits from the Detroit car companies to a union-run trust fund that the companies will fund at 60 cents on the dollar. The union also accepted two-tier wages, with lower pay for many new hires, and agreed to let the companies offer workers lump-sum buyout plans to shed unneeded positions. The short strikes that preceded the agreements with GM and Chrysler stemmed from Mr. Gettelfinger's need to sell the deal to the union's rank-and-file.
Suggestions that he sold out UAW members are nonsense. Detroit's car companies surely would have failed within a few years had the union not relieved them of their cumulative $88 billion in retiree health- care liabilities.
The companies now can focus management time and money on making great cars, instead of struggling to fund crushing financial obligations. And if the Detroit Three do blow it anyway, the up-front funding of the trust fund that Mr. Gettelfinger negotiated, even at a discount, will look like a great deal. The 63-year-old Mr. Gettelfinger "is Detroit's Man of the Year," says David E. Cole, head of the Center for Automotive Research in Ann Arbor, Mich.
Delphi, meanwhile, continues its efforts to emerge from bankruptcy proceedings, with a plan that includes a proposed $8.3 million bonus payment for Mr. Miller. That has added to his pariah status with the union -- even though Mr. Miller worked for just $1-a-year for the last two years.
HarperCollins is publishing a book by Mr. Miller, immodestly titled "The Turnaround Kid," that will hit bookstores soon. In the book, Mr. Miller calls Mr. Gettelfinger a "big disappointment," and adds: "I understood that Gettelfinger was in a bad position, presiding over the decline of his union, but making me the bogeyman was unnecessary and, I thought, beneath him."
Their mutual hostility aside, it's clear that Messrs. Miller and Gettelfinger have given GM, Ford and Chrysler a chance -- just a chance -- to cure their current woes. Mr. Miller had the courage to deliver a no-nonsense wakeup call to the UAW and to the Detroit Three. Mr. Gettelfinger had the courage, and the political clout within his union, not to ignore it.
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Mr. Ingrassia, a former Dow Jones executive, was this newspaper's Detroit bureau chief from 1985 to 1994, where he won a Pulitzer Prize for coverage of General Motors. He's currently writing a book on the dozen cars that shaped modern American culture.
