Nonunion Delphi Retired Employees Get Shaft in Auto Bailout

Delphi CorporationWhen the Obama administration this past spring forced the bankrupt General Motors and Chrysler Corp. into virtual public receivership, officials justified the action as crucial to the survival of the auto industry and indeed the entire economy. Yet this unprecedented action has had several downsides, one of the less heralded of which has been the sudden vulnerability of current and retired employees who don’t belong to a union. Case in point: the roughly 15,000 nonunion retirees of auto parts manufacturer and former GM subsidiary Delphi Corporation on the verge of losing their pension, health insurance and life insurance benefits. These people are getting a first-hand lesson in the drawbacks of not being politically connected. That’s something members of the United Auto Workers (UAW) and other auto industry-related unions don’t have to worry about. 

GM and Chrysler are now wards of Obama administration “car czar” Ron Bloom and his immediate boss, Treasury Secretary Timothy Geithner. During the waning months of the Bush administration, the automakers pleaded for, and received, commitments for a combined $17.4 billion in emergency bailout loans, the last $4 billion contingent upon federal acceptance of company restructuring plans. That would prove a dress rehearsal for the full-fledged takeover commandeered in April by the Obama administration, which found the reorganization plans unacceptable. (The more solvent Ford at least averted a similar fate.) In return for liquidating outstanding company obligations, the federal government, through a combination of cash and loan proceeds, bought a 61 percent equity stake in GM and a 10 percent equity stake in Chrysler. The term “bailout” also applied to the United Auto Workers, with its shrinking membership. Having already managed in the fall of 2007 to take control of company-funded member retiree health benefit plans starting tomorrow, January 1, 2010, the union under Obama got another pair of presents: 17.5 percent equity ownership in GM and a 55 percent stake in Chrysler, the latter of which is 20 percent-owned (and potentially 35 percent-owned) by Fiat.

When the dust settles, it will be a costly rescue. And many will bear that cost. For one thing, taxpayers are on the hook. The Obama administration’s bailout of General Motors and Chrysler will require a combined $30 billion public subsidy out of the $82 billion loaned out. If it’s any comfort, this subsidy represents a downward revision of an earlier estimate of $44 billion. Bondholders already have been taken to the cleaners, receiving pennies on the dollar to satisfy their claims against the two companies. Retail auto dealerships, as part of a cost-cutting program, also stand to lose in a major way. GM announced it would cut 2,400 mainly smaller-volume dealers from its 6,000-member network, while Chrysler would eliminate nearly 800 dealerships, about a fourth of its network. Though the House in July passed legislation to force the companies to keep the dealerships open, a number of dealers believe little will come of this.

But few are reeling quite in the way like nonunion retirees of Delphi Corporation. The Troy, Michigan-based Delphi, with nearly 150,000 employees worldwide and $18.1 billion in revenues for 2008, had been a parts division within General Motors until it was spun off as a separate publicly-held firm in 1999. The reorganization didn’t stave off a meltdown. Delphi went into bankruptcy in October 2005, driven by high benefit commitments and revelations of accounting irregularities. And while the company climbed out of bankruptcy four years later, its pension plans remains well underfunded, so much so that this past July the company terminated its employee pension plans, sticking the federal government’s Pension Benefit Guaranty Corporation (PBGC) with a long-range tab now estimated at $6.7 billion. But the pain isn’t being shared equally – far from it. While some union retirees have been shortchanged, it is the firm’s nonunion salaried former workers who are being singled out as expendable.

Under the agreement with the government, General Motors will cover an estimated $4.3 billion pension shortfall for wage-earning union workers who had been with Delphi as of 1999, yet it will not have to do likewise with the $2.5 billion pension deficit for Delphi’s nonunion salaried retirees. Nor will Delphi itself provide health or life insurance coverage to those workers. Thus, some 15,000 former administrators, purchasing managers, engineers, bookkeepers and other white-collar employees, many with the company for decades, are being hung out to dry. “We have been discriminated against overtly by our federal government, which chose winners and losers between the union and nonunion individuals,” notes Den Black, interim chairman of the Delphi Salaried Retirees Association.

Black, along with the heads of GM, Chrysler and Ford’s nonunion salaried retiree organizations – respectively, Jack Dickinson, Chuck Austin and Don Whitehouse – already had sent a long letter to Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers dated March 24 requesting that President Obama’s Automotive Task Force give them an opportunity to lay out major concerns regarding industry restructuring. The letter read in part:

It is evident non-union retirees are facing an economic tsunami. Our investments have been devastated by a precipitous drop in the stock market and employers are abandoning non-union retirees by eliminating as many benefit programs as possible for cost-cutting purposes. As a consequence, non-union retirees face rising medical costs on fixed incomes and devastated savings. In addition, non-union retirees face an uncertain future relative to their pensions. The domestic automobile industry is in the midst of a massive restructuring and needs federal loans to stay solvent. Consequently, not only the survival of the companies is at risk but also the pensions of all retirees.

The salaried retiree representatives called for such measures as forcing the automakers to enhance retiree contributions as their own positions improve; preventing pension funds from being diverted toward employee buyouts; and maintaining supplemental benefits during company restructuring. While not begrudging union employees’ right to a decent retirement, the authors are wondering why nonunion employees can’t get the same kind of protection. Black believes politics explain the discrepancies. “It was the U.S. Treasury that owned the majority share in GM that ran the whole train,” he said. “None of this was driven by contractual obligations. This was driven by political considerations and Treasury telling GM what it would do.”

His organization and several individuals have taken action. For one thing, they filed a civil suit in U.S. District Court for the Eastern District of Michigan this September alleging that PBGC violated federal pension law by failing to obtain court approval of its termination of Delphi’s defined-benefit plan and failed to safeguard the interests of plan participants and beneficiaries. The complaint charges that Delphi’s plan administrator knuckled under to extreme government pressure. As it stands, nonunion Delphi employees stand to lose anywhere from 30 percent to 70 percent of their pensions, while employees who took an early retirement might not see dime because PBGC doesn’t pay “supplementary” benefits. The company had not made any contributions during its four-year period of bankruptcy. By contrast, the salaried retirement group notes, Delphi “topped off” (i.e., protected the full benefits) the pensions for unionized hourly retirees. It’s worth noting that Treasury Secretary Geithner sits on the PBGC board.

The Delphi retiree group also has taken its case to Congress, winning a separate hearing in each of the House and Senate. On October 29, a panel of the Senate Committee on Health, Education, Labor and Pensions, chaired by Tom Harkin, D-Iowa, convened a hearing on the disparate treatment of Delphi employees. Sen. Harkin, long a union partisan, didn’t offer too much encouragement for the salaried employees. The primary injustice, his language strongly suggested, was the union workers “who labored right alongside their brothers and sisters, but are not being made whole on their pensions.” In point of fact, GM had agreed the previous month to “top up” the pension benefits of those workers. Yet Sen. Harkin referred to the far greater plight of the roughly 15,000 salaried retirees almost as an afterthought, not even making mention of the fact of their non-membership. Ranking Minority Committee Member Sen. Michael Enzi, R-Wyo., at least, understood that nonunion employees have gotten the short end of the stick. “Everyone needs to know and understand what promises were made, who negotiated the deal, and how this administration also pre-packaged the GM bankruptcy arrangement,” he said.  He added that he’d written a letter to Secretary Geithner requesting information on how the pension decisions were made – a response, his spokesman noted, was yet forthcoming.

On December 2 the House Education and Labor Committee, Subcommittee on Health, Employment, Labor and Pensions, held its own hearing. Rep. Tim Ryan, D-Ohio, whose district in the Youngstown-Akron-Warren area is home to some 5,000 Delphi salaried retirees, stated, “So the people least responsible for the bankruptcy of a company like Delphi are in the end, the ones who lose their job over it.” Ryan has introduced legislation, H.R. 3455, to establish a Voluntary Employee Beneficiary Association (VEBA) for former Delphi employees. The measure would use unspent TARP funds to provide health coverage to hourly and salaried workers. House colleague Michael Turner, R-Ohio, whose Dayton district has about 1,000 salaried Delphi retirees, likewise remarked: “All of these retirees, regardless of labor affiliation or not, worked alongside each other during their careers. They should not be treated differently in retirement. Congress and President Obama’s administration owe it to these hard-working men and women to pursue aggressive oversight in this matter, and to work toward a solution.”

Perhaps the most telling comments have come from nonunion Delphi retirees themselves. Here are what a few former longtime employees had to say in response to a September article in the congressional newspaper, The Hill. Fred Arndt wrote:

I had 32.5 years with GM and Delphi, and now I’ve been thrown under the bus by GM, Delphi and the Government. I hear a lot of talk about help in Washington but nothing is happening. President Obama only wants to help the unions. Just look at the facts.

Julianne Kronoshek weighed in with this comment:

I worked as a salaried employee for GM a total of 35 years, and 9 additional years for Delphi as a salaried employee. I will not receive the benefits that union employees will receive from GM, and many of those union members never worked for GM. Explain to me how you can justify this intrinsically obvious discrimination against a class of people.

Garry Gilliam also had something to say:

As a Delphi salaried employee who worked 39.3 years for GM and 9 months for Delphi I think I have a right to feel both angry and abandoned as to how unfairly being a Delphi salaried employee we are treated by the Obama administration, GM and Delphi regarding our pension and health care benefits. Salaried employees were not allowed and did not attempt to form a union because we were always told we would receive the same benefits as our union work force. I ask you, is this justice?

The plight of these and similar workers ought to elicit strong sympathy across the political spectrum. What we have here are longstanding and loyal employees of an organization who have been relegated to second-class legal status. Standing with them is an example of how populism and principle can be united. The Obama administration effectively is assigning a lower priority to the benefits of nonunion employees than to the benefits of union employees. “Saving GM” may seem an overriding justification, but it is not. Giving nonunion Delphi employees the shaft serves to undermine rule of law and public trust in the corporation as an institution. The logical conclusion: Joining a union is a good way to avoid being left out to dry. The government’s bailout of Delphi, like that of GM and Chrysler, can be seen as a not-so-subtle way of boosting union ranks.

The collapse of GM, Chrysler and Delphi must be understood largely as the end result of numerous union victories at the bargaining table locking automakers into unsustainable obligations. The United Auto Workers in particular couldn’t have asked for a better negotiating partner than the Obama administration, who all too readily gave it a huge piece of the action. This administration has a distinctly progressive-Left corporatist vision, aggressively enlisting unions and businesses as “partners” to achieve broad societal goals. Having received generous campaign contributions from organized labor, Obama and his top people thus far have reciprocated on a grand scale. For some reason, nonunion retirees at Delphi aren’t smiling.