Tough Times at U.S. Makers of Auto Parts
By DANNY HAKIM and JEREMY W. PETERS
NYT
December 24, 2004
DETROIT, Dec. 23 - So many jobs have been cut by the auto parts giant Delphi that workers sound almost existential about their future.
"I think about it," said Robert Pepin, 47, a forklift driver walking to his car after his shift on a recent frigid afternoon at the Delphi East plant in Flint, Mich. "It worries me. But, hey, the sun comes up, the sun goes down."
"You worry about the task at hand," he added. "That's the way I look at it."
The shrinkage in the customer base of General Motors and the Ford Motor Company has long squeezed their Midwestern suppliers large and small. But in the last year, the outlook has become much grimmer for the largest domestic suppliers, Delphi and Visteon, which were spun off half a decade ago by G.M. and Ford.
Together, Delphi and Visteon, based in the Detroit suburbs, employ more than 80,000 Americans but are still struggling to find their way as independent companies. With G.M. and Ford lowering production forecasts as they continue to lose customers to Toyota and other foreign competitors, Wall Street is expecting losses at Delphi and Visteon next year and the companies are cutting their domestic work forces as jobs shift overseas.
"You can't count on 30 years of work anymore," said Steve Grandstaff, the chairman of Local 651 of the United Automobile Workers in Flint. "You hope for the best and plan for the worst."
Though Delphi and Visteon are hardly household names (they ranked 56th and 109th, respectively, in the most recent Fortune 500 list), they produce everything from air bags to leather-wrapped steering wheels to software that keeps motors running across the nation. Their problems - keeping up with soaring costs of health care and commodities like steel - are common among domestic manufacturers. And they remain dependent on their shrinking former parents. A little over half of Delphi's business still comes from G.M., and 67 percent of Visteon's revenue comes from Ford.
On Tuesday, Standard & Poor's lowered Delphi's credit rating to junk status, citing in part G.M.'s weakness; the agency lowered Visteon's debt to junk a year ago.
Analysts see domestic job cuts as a necessity.
"Over the long term, we expect Delphi to make progress," said Martin King, an analyst at Standard & Poor's. But that will come in part "by reducing its number of high-wage U.S. hourly workers," he added.
One issue is that the spinoffs negotiated with the union require Delphi and Visteon to pay existing workers as if they still worked at G.M. and Ford, not lower wage rates paid by other suppliers. Last year, though, the union agreed to far lower compensation rates for new hires: $23 to $24 an hour, including wages, health care and other benefits, drastically lower than the current $65 to $70 an hour cost of labor.
Not that anyone's hiring.
"It's hard to see them using it when they're still shrinking," said Stephen Girsky, an analyst at Morgan Stanley, referring to the new compensation rate.
And a domestic worker would still be 10 times as expensive as a worker in Mexico and 12 to 13 times a typical industry worker in Shanghai, according to figures provided by Delphi.
This month Delphi said that it would shed 3,000 jobs in the United States and another 5,500 in Europe. That is on top of the more than 9,000 jobs the company already cut this year, largely in the Midwest. Visteon is offering buyouts to its 8,300 domestic salaried workers but has not said how many have accepted the offers.
Delphi has been pushing to diversify to other automakers and even makes medical devices and portable satellite radios. It is also diversifying geographically. When Delphi was spun off from G.M. in 1999, 41 percent of its work force was based in the United States, compared with 30 percent of its 186,000 workers today. In an interview last week, J. T. Battenburg III, Delphi's chairman and chief executive, said that percentage could fall another 5 to 10 percentage points in the next half decade.
"It's very hard to keep jobs here," he said, citing rising health care, pension and litigation costs as crucial disadvantages. The nation's medical system is seen as particularly unsuited for preserving jobs. G.M., Ford, Delphi and Visteon compete against companies based in nations with socialized health care and thus far lower costs. G.M. spends $1,400 per assembled vehicle in the United States on health care, more than it spends on steel.
Flint, once a vibrant hub of G.M., has long been absorbing the blow. Delphi's local work force has shrunk from about 4,500 to 3,000 in five years, according to the union. At the entrance to Local 651, a one-story brick building in the shadow of the huge Delphi East plant, a sign reads: "American-made vehicles only! All foreign-made vehicles will be towed at owners expense."
Many workers at the plant, which makes spark plugs, oil filters and fuel tank parts, are somewhat jaded.
"I can come to work and do the best job I can, but that's about all I can do," said Valerie Scoble, a 50-year-old assembly line worker standing in a Walgreens parking lot near the plant, waiting for her ride. With an 18-year-old daughter in college, she tries not to think about losing her job of two decades.
"You can't let it ruin your day," she said. "We don't have that much input in how they manage the company. We're not the ones in charge."
The situation looks even more dire for Visteon, which lost $1.36 billion in the third quarter alone. Many analysts say Ford's 2000 spinoff of Visteon was a rushed reaction to G.M.'s spinoff of Delphi a year earlier.
"G.M. started to restructure Delphi in 1992," said John Casesa, an analyst at Merrill Lynch. "I don't think that Visteon began to restructure until the moment they did the I.P.O."
Visteon said in September that it was exploring a major restructuring of its North American operations and a spokesman said recently that executives would not comment further until the process was done.
This is not to say American auto work will disappear. With rapid delivery of parts a common requirement of modern manufacturing, automakers demand that many suppliers of major components build plants near their own. And automakers like to have factories close to their customers, so Toyota, Honda and other foreign automakers have built many plants here, though often in the South where labor is cheaper and unions face steep obstacles. Still, the new jobs only partly offset the staggering drop in the U.A.W.'s membership, from roughly 1.5 million workers in 1980 to fewer than 700,000 today.
Mr. Battenburg said a core of Delphi's work force, perhaps 25 percent, would remain here for a number of reasons.
"What you have to do is look at the total cost," he said, when asked how he decided where to put work. "I'm talking about currency, transportation costs, inventory costs, risk, stockpiles and warehouses."
"Every contract you win," he added, "you have to weigh those advantages and disadvantages."
Tim Steyer, 37, who makes fuel tank parts, survived Delphi's first round of cuts this year. And the next? Considering the question, he shrugged, stuffed his hands in his pockets to keep warm and walked through a turnstile outside Delphi East.
"When I read that in the paper, I was worried who it would impact and hoping it wasn't going to be me," said Mr. Steyer, a father of three. "But you never know."
Charles Snyder, a toolmaker for 29 years, said insecurity led to apathy.
"People think it doesn't matter, a lot of times, what you do," said Mr. Snyder, 49, as he waited to eat his lunch at a fast-food restaurant near the plant.
"You had a lot of pride. Not now. It tears your heart out." |
