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Published: Friday, 10/14/2005

Beginning of the end of U.S. auto industry?

DETROIT - For years, the prophets of doom have predicted the eventual end of the domestic automotive industry as we know it. But that didn't seem to lessen the shock when the first atom bomb fell last week. That came when Delphi Corp., the nation's largest parts supplier, announced it would file for bankruptcy.

That wasn't the shocker; that had long been expected. Some had thought that General Motors Corp., Delphi's biggest customer, might bail them out. Delphi, after all, was once a former subsidiary of GM. However, that would take billions, and General Motors itself has lost something like $2.5 billion on its American operations this year alone.

Delphi does not, of course, intend to go out of business; it filed bankruptcy to give it time to reorganize its affairs. What stunned the industry is what it proposes to do to its 33,000 unionized employees. Most are represented by the United Auto Workers, which also represents workers for the Big Three.

Robert "Steve" Miller, Delphi chairman, said he needs to cut UAW workers' pay from an average of $27 an hour to $12 an hour, and sharply reduce health care and pension benefits as well. That would, of course, effectively destroy the middle-class lifestyles they have been living.

Stunned, the head of at least one Delphi UAW local vowed that he would take his workers out on strike before accepting such conditions. But industry experts, including Micki Maynard, the New York Times Detroit bureau chief, said they didn't think the giant parts supplier was bluffing.

"The union isn't going to be able to get much better terms," said Ms. Maynard, the author of a sobering book, The End of Detroit: How the Big Three Lost Their Grip on the American Market. Delphi has, she added, little wiggle room.

What really worries union officials is the industry's legacy of pattern bargaining, in which UAW contracts with various automakers and suppliers tend to mirror each other. If the union accepts cuts of the kind Delphi is insisting on, many think the automakers themselves will want the same. That could spell the end to life as auto workers have known it. But the crisis has been building for a long time.

Back in the 1960s, Detroit's Big Three had more than 90 percent of the domestic auto market. Now, they account for barely 55 percent. And Chrysler, now DaimlerChrysler, is really the junior subsidiary of a German firm.

James Duderstadt, a former president of the University of Michigan and a professor of science and engineering, has been working for months on a just-released major report, "A Road Map to Michigan's Future."

It is gloomy reading for those heavily invested in the brawny industrial dreams of the automobile state's past. "Michigan's old manufacturing economy is dying, slowly but surely, putting at risk the welfare of millions of citizens in our state," it begins.

"Preoccupied with obsolete political battles, addicted to entitlements, and assuming what worked before will work again, Michigan today is sailing blindly into a profoundly different future."

Though not a man given to sensationalist rhetoric, Mr. Duderstadt compared Michigan to the legendary mule who needed to be whacked over the head with a 2 by 4 to get its attention.

He indicated that the Delphi bankruptcy could be that piece of lumber for people who have felt that all Michigan needs is a couple of good car-selling years to get the state back on its feet.

Mark Gaffney, president of the state AFL-CIO, defended UAW leaders who said they'd go on strike rather than take the cuts proposed by Delphi.

"You can't agree to your members being robbed of a middle-class lifestyle," he said during an interview (with me) on a radio-call in show.

Yet later, after the broadcast, he acknowledged that the situation was grim indeed, and not just because of Delphi. During the program, an economist noted that American unions, which now represent less than 8 percent of the private sector labor force, were failing to organize the new auto plants being built in the United States, often by Japanese firms like Toyota and Honda.

"I know that, and know we don't have a lot of time," said the AFL-CIO leader. He mentioned a study indicating that if present trends continue, by 2010 or 2012 there will be more American autoworkers who aren't members of the UAW than those who are.

If that happens, he said shaking his head soberly, "We're done." He meant the union movement, but the same words might apply to a state once seen as the nation's technology leader.

Phil Power, vice-chairman of the Michigan Economic Development Corp., a state agency charged with boosting job growth, thinks the crisis goes far beyond unions.

"Whatever happens to Delphi, everything we have assumed for years and years to be the right and proper order of things in Michigan is going to change.

"I really hope we have the wisdom to concentrate on the long run," he said.

The Delphi crisis, he added, is merely the tip of a fast-looming iceberg. Today, it is hard to find anyone in the know who disagrees.



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