Steve Miller Q&A
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Steve Miller Q&A
Delphi: Fix wage inequality or shut plants
Miller says auto firm needs same deal as U.S. competitors to survive.
The Detroit News
The Detroit News editorial board Monday interviewed Delphi Corp. Chief Executive Robert S. "Steve" Miller. The following is transcript:
Q. Would you like to make an opening statement?
A. We are in a Chapter 11 bankruptcy process. The fundamental reason is we have labor costs in our North American facilities that are double or triple what our U.S.-based unionized suppliers (competitors) pay. That is a difference that is unsustainable. The differential existed from the time of the spinoff to Delphi, but the spread has gotten wider, and the sharp decline in General Motors' volumes has made the financial situation untenable. As part of our bankruptcy process, there are two things:
One thing we have not done, what the other bankrupt entities like Northwest Airlines have done, is we have not gone for emergency relief, immediate reductions in payments to the work force. We have said we will work this out in good-faith negotiations with our unions, and that remains our intent.
To that end, we have filed two proposals with the union, the second of which was filed Tuesday of last week, which calls for a base wage of $12.50 an hour for production workers and an all employees benefit cost of $21 an hour. So the fundamental task is to be treated equally with other American suppliers with whom we must compete and to have comparable wage and benefit costs with those unionized competitive suppliers. Without that, we would have no choice but to close our facilities eventually. That is because, in our bankruptcy process, we would not be permitted to continue subsidizing loss operations. It's either fix them or close them.
I brought a couple of charts to underscore a couple of points. This is a comparison of Delphi's wage and benefit costs (with legacy costs). Here it shows they are $76 an hour -- the $27 of base wage and $27 of wage-related benefits like vacations and so on. Then the legacy cost is the fact that we have a lot of retirees and an under-funded pension plan and so on that need to be considered.
We have made the proposal of $12.50 an hour and what we figure is $8.33 of benefits for active (workers). And that would bring us to $21 an hour. The point of this is that it is in line, though higher than many, in line both on base wage and benefits with the people with whom we compete. We've indicated here that many of them have the same unions that we have.
Q. What are the names of some of those competitors?
A. We did not selectively choose a couple of weirdo mom and pops. These are all the multibillion-dollar competitors. They include Lear, Johnson Controls, Collins & Aikman, Bosch, Siemens, Denso. These are the people we have to bid against for business. And so this is a for-real set of competitors, not a carefully cherry picked set.
What you see here is that union and nonunion, it doesn't make a lot of difference.
Now we did make a previous proposal to the union that was at a rate of $9.50 or $10.50, call it an average of $10 an hour for our production workers. What we did there is we said we've got some legacy catchup to do.
We now have decided that instead of taking that approach, we would deal with this in some way yet undefined in our bankruptcy process. Just like we would consider our bonds are a legacy liability, we would consider the pensions to be a legacy liability. It could be worked out with General Motors. It could be worked out with PBGC (Pension Benefit Guaranty Corporation). That allowed us the flexibility to put down a $12.50 number here.
Is this a fixed, firm and final? Frankly, I don't know how to go to a total above $21 an hour without that being a plan to obliterate (Delphi) because we won't be able to compete for new work.
As to the mix between the wages and benefits, we can certainly have discussions with the union.
Here's a new chart. All of the news stories that I have read focus on this bar to this bar (current wages and benefits compared with proposed wages and benefits). They say, "Wow, what a steep drop in income for those workers." And it is. This will be thousands of very difficult transitions for our working people because they had every right to expect that the current social contract would continue indefinitely, which includes the 30-and-out and includes everything else they got. Then all of a sudden, events have overtaken them. That's an issue. It's certainly a major focus.
What almost nobody has done is lay out a comparison of what this means compared with what everybody else in the industry is doing. There's no rioting or tar and feathers brought out for the CEOs of these places (U.S. competitors). These are contracts that the unions apparently are proud of, and that's life in our industry.
If we're going to get any new business and keep our plants open, we need to be in this (wage and benefit) range (like other competitors).
There's been a lot of discussion about how this is the end of the middle class. Here's a chart that I call: This is the middle class. We've taken each of the regions where we have plants and gone to the Bureau of Labor Statistics. This is not something I made up. These are government statistics of what various classifications of what manufacturing workers make. In the regions where we have factories, the average base wage is $11.91 (an hour). So again, when an offer of $12.50 is characterized as the destruction of the middle class, where are all these people? They are people I regard as the middle class -- manufacturing workers throughout the eastern half of the United States.
Q. One of the traditional benchmarks that people around here use is "Well, the workers are no longer going to be able to afford an automobile." Henry Ford's $5 a day idea is dead.
A. I've been to many of the factories that are represented on that chart. You know what? The workers drive cars to work from their homes. Somehow they do it. The difficulty is managing (expenses). You've got car payments and mortgages based on this (current wages) and you now have to change here (proposed wages). That's going to be extremely difficult for our people. But the fact is most of the rest of these (factory) people are making do.
Q. What does the union say when you show them what they approved around the country?
A. You've heard what the union has had to say about this. These charts were attached to our proposal last Tuesday. We've been saying this in words for several months as we tried to encourage them to do something. They've made no counter-proposal. My notion of how a discussion and negotiation should work is that each party should propose a resolution to the issue. I don't think there's any doubt as to what the problem is here. How to deal with it is an issue.
Q. The counter-proposal seems to be the leak that the United Auto Workers has a $1 billion strike fund.
A. Yes, I don't underestimate the political problem it has in helping its membership make this transition. I've said many times that between myself, (General Motors Chief Executive) Rick Wagoner and (United Auto Workers President) Ron Gettelfinger, my job is the easiest. My problems are more urgent, Rick's are more serious and he's dealing with them constructively, and Gettelfinger's got the toughest job of all in this town because he has to help his membership make a transition. And these issues aren't limited to Delphi. They include General Motors. I was very admiring of Rick's press conference. He is doing the same thing that I am doing, and that is facing up to reality, which is his need for market capacity -- dealing with it in a open way and dealing with it in a bold way. He expressed that he will need to work the transition out with the union leadership, and those are all the same things I'm saying. We are on very parallel courses. GM, we believe, will emerge from what it's doing today as a much stronger competitor and therefore a much more viable customer for us.
Q. One difference between the two paths is you've got a bankruptcy court date that you can hang yes or no answers to -- Dec. 16 and the judge decides on Jan. 24.
A. No. Let me go through it. On Dec. 16, in the absence of some change in the nature of this process, we will be filing a motion. But on Dec. 17, life will still be the same. That is, we will continue to honor our labor contract, as we have up to now. We will not be seeking emergency relief. We will continue to negotiate if the negotiations have not borne fruit by that time. The hearing will be scheduled for Jan. 24. It is theoretically possible but in my mind inconceivable that the judge would rule from the bench, even though I also believe we have a slam-dunk case for our motion, which is we cannot restructure this company at those labor rates. But the judge has up to 30 days to give a ruling, and it is in the nature of bankruptcy judges to encourage the parties to negotiate and come to their own resolution while there is still time.
There is no doubt in my mind that I would strongly prefer to find a negotiated resolution without the necessity of a court-ordered rejection of our labor contracts. ... All (the judge) can say is, reject or not. ... What I'm not sure of is whether the union (officials) feel the same way. You would have to ask them.
We would have the right, but not the obligation to impose the new conditions. And the union would have the right, but not the obligation to go out on strike.
Q. There has been some threat that the union might go out on strike prior to that.
A. Legally, it cannot go out on strike over wages and benefits that we're in discussions about but not have been imposed. If there were considerable unrest, or if it was to find some other pretext for a strike -- it could make up something -- a safety issue...
Q. Has the work to rule affected output at all?
A. No, we have not had any impact on any customer whatsoever, and are continuing to produce with outstanding quality. I actually want to congratulate our work force. As angry as they are at the message that I am delivering about future prospects for wages and benefits, they are nonetheless seemingly in a mood to show us how good they are.
Q. I've read that you've received hundreds, if not thousands, of scathing e-mails from employees. Are they interested in staying to work for Delphi if you equalize the wages like that, or are they looking to find other jobs?
A. Other than the fact that you've got a huge retraining problem, there is no issue as to whether you would find people willing to work for the offer we're making. One or two of them have said in anger that I'm not going to do this job for a lousy $10 an hour, which by the way is no longer the proposal. Most of them are simply coming from a sense of entitlement: Mr. Miller, I've worked here for 20 years. This is what was promised to me, and you are a bad person for taking it away from me. It's also the personal hardship this would wreak on people who do have mortgages and car payments and maybe kids in schools whom they need to support, and they don't know how they are going to do that with the sudden drop in wages.
The next thing is that the e-mails I get are from all stripes of hourly and salaried, from people who have five to 10 years in the firm who have quite a different view from those who have 29 to 32 years of service, and all they really want is, "Just don't mess with my retirement. I'll do whatever you say."
One of the things that Rick (Wagoner of GM) was talking about at his press conference today that might be relevant to our situation is the notion of buyouts, buydowns. He doesn't have buydowns; we might end up with that. That has come up in speculation about how the Delphi situation might be resolved. We are in bankruptcy, and we cannot afford to keep subsidizing this. Our competitors won't let us do unusual things. But it is possible in our discussions with our primary customary who is involved in this, General Motors, that we might work something out with General Motors that would provide soft landings for our people. General Motors is the contingent guarantor of the retirements for a lot of our people. And so an assured retirement may be attractive to many of our people versus working for a much reduced wage.
This is, like it or not, a three-party negotiation. That is because most of our senior people went to work for the General Motors Corp. One day in 1999, we took that label off their shirt and put a Delphi label on it, but many of them still think of themselves as part of General Motors. Between that attitude and the significant customer relationship and the retirement benefit guarantees, there is no way that this is going to be resolved without some significant input from GM. Trying to have a three-way conversation is always awkward, and GM's got other things on its plate. ... But the resolution for Delphi will include participation from GM.
Q. How would you judge the business climate in Michigan and in terms of taxes?
A. The environment has been not as good as some of the other states, but the governor and the Republican Legislature I think are really trying to improve the business friendly nature of our state. I've been very pleased by the reaction of the political leaders in a number of the states we operate....
Q. Should Gov. Jennifer Granholm pass the Single Business Tax cut package (she vetoed it Monday)?
A. She told me two weeks ago that she had worked out something with the leadership, but somehow it feel apart again. ... I can't answer you right now. I've lost track of where it stands.
Q. Granholm has set out a relief package that included not having a free trade agreement with Thailand to allow in more pickup trucks, and some pension and health care reforms. Have you found any of those options attractive?
A. I haven't been into the details of what she was laying out. I think it's a good thing that she's trying to organize our public leaders to consider public policies that can help stem the loss of American jobs. The fact is, in America, we put too much of our burden of social costs on the back of the process of production. What do I mean by that? Income taxes, wage taxes, corporate taxes, the whole nature of our health care system and our pensions are all a financial burden on producers. The problem is you're dealing in a global economy. (Those who) export into our country from other nations are basically coming from a consumption tax-based economy that can support their social programs in Europe or Japan.
The exporter avoids many of those taxes and comes here and sells against a producer who is burdened with those taxes. So it's not surprising that we have lost a lot of job losses. Changing the tax system won't stop globalization. There will still be comparative advantages for this and that. But I think some of the job losses in the U.S. are due to the fact that we put too much of our social burden (on companies). If we had more of a consumption tax-based economy in this country, it would level things out between importers and domestic producers that would be to the advantage of those providing jobs to Americans.
Q. You've reportedly had conversations with Sen. Hillary Clinton and others about health care. What are your thoughts. You're clearly a man who understands markets.
A. I did spell out in some detail on pensions what I think, which I think is contrarian to what the Senate just did last week. Both the accounting and contribution rules should be significantly tightened for those who want to have a defined-benefit pension program and have the government backstop (it). You should be under very strict rules to keep the funding up so we don't end up with companies getting into troubles. The accounting rules are so that we face the trouble, rather than hide the problem. The current accounting rules allow us to ignore the problems to a certain extent. It's not that anyone is keeping bad books. The rules themselves are way too soft in terms of how a burgeoning retirement liabilities are building up.
Second, the contributions should be much stricter. Now, it's in the nature of capitalism that companies will go through hard times. But the relief valve there in my mind should be the regulatory authority vested with the PBGC and its board to grant stretchouts tailor made to the individual corporate situation as opposed to Congress trying to write a one-size-fits-all stretchout. The one size fits all has the problem that it may save some of the current people in trouble but you just know that more people are going to get in trouble down the road.
Right now, (the pension guaranty agency) only has the nuclear option: Blow up your plan. Other than that, it just sits there as a very low person in the creditor group. If it had conventional weapons, it would be the ability to take collateral, insist on covenants, insist that benefits be frozen so they don't get away from you before you get them back under control. You could have a much more disciplined system. It wouldn't save the Delphi situation. It's too late to save the Bethlehem (Steel) situation or the United (Airlines) situation.
As for health care, I had a brown bag lunch down in Washington and I was talking about this general notion of health care and consumption taxes. Congressman (Dennis) Kucinich (an Ohio Democrat) says, "Well, Mr. Miller, obviously, then you are in favor of national health care. And instantly one of the Republican congressmen gets up and says, "No, he's not." I just said: Look, this is complicated. I need some time to think it through.
I think health savings accounts are on the right track. I think tort reform is a part of it. I think use of information technology to improve the quality of health care (is a part of it). There are a lot of things we can do to make the problem smaller. I'm not quite ready to cast my vote for national health care, but our current system is way too expensive. And the way it gets piled on employers is hurting us in terms of job creation....
Q: One of the things some of the workers were upset about your comment about paying a worker $65 an hour to mow Delphi's lawn. Do you now regret making that comment?
A: Yes, I do. Not because it was mean-spirited in intent. It's related to something we haven't yet talked about. We have a lot more people in our plants than any of our competitors would have for the same work. That is because we have work rules, job classifications, outsourcing restrictions all designed to increase the number of jobs at a facility, but that is a further part of our cost penalty. And it will not be enough for us to merely take our benefit package to $21. Part of our proposal is to get rid of 50 years' accumulation of antiquated work rules that are what I call productivity inhibitors. ...
We need to deal with the productivity inhibitors, and one of them is the ability to outsource non-core, unskilled seasonal jobs. So that particular remark was aimed in part at $65 for... I was trying to pick an extreme example of an unskilled assignment that we are required to use a full-time year-round work force for a seasonal unskilled job like lawn mowing. So I blurted it out.
Clearly, the workers took it as an insult to the significant skills and training that's required to operate some of the sophisticated machinery we have inside the plant. Am I sorry I said it? Yes, not because I have an insulting intent. I'm only sorry that they took it as an insult. ...
Q. How much market share has Delphi lost to these U.S. competitors?
A. We haven't won any business at these (U.S.) plants. Any business that we have gotten basically has been at our non-U.S. plants. We have come out of nowhere to where we now have $14 billion a year of non-U.S. (work). The non-GM business is up to 53 percent in the third quarter, and that's up from less than 20 percent when this company was formed.
Rick (Wagoner) says he is paying a $2 billion premium to Delphi compared with what he would be paying if he could globally source. That was part of how Delphi was carried to this point. But nobody else other than GM has been willing to pay a $2 billion a year premium for the privilege of sourcing with us. We're good, but we're not that good....
One thing you haven't asked about is whether we will shrink the number of U.S. jobs even if we get what we proposed.... And the answer is yes, there will be a significant shrinkage. We do have a significant part of our production base in the manufacture of parts which cannot be made even at $10 an hour. A big one we can't make any more is spark plugs. Things like that are going to be made in low-cost countries, and there's nothing we can do about it.
There's a lot of other things that are not so labor-intensive and very high value and very bulky, like an engine manifold cover with all the electronics. Those things I believe will be made in North America, because you cannot afford the logistics, you cannot afford a long pipeline with that much value for a product that is technologically changing all the time.
We would like to be able to compete on an ongoing basis for that business. And we can at $21 wages and benefits.
Miller says auto firm needs same deal as U.S. competitors to survive.
The Detroit News
The Detroit News editorial board Monday interviewed Delphi Corp. Chief Executive Robert S. "Steve" Miller. The following is transcript:
Q. Would you like to make an opening statement?
A. We are in a Chapter 11 bankruptcy process. The fundamental reason is we have labor costs in our North American facilities that are double or triple what our U.S.-based unionized suppliers (competitors) pay. That is a difference that is unsustainable. The differential existed from the time of the spinoff to Delphi, but the spread has gotten wider, and the sharp decline in General Motors' volumes has made the financial situation untenable. As part of our bankruptcy process, there are two things:
One thing we have not done, what the other bankrupt entities like Northwest Airlines have done, is we have not gone for emergency relief, immediate reductions in payments to the work force. We have said we will work this out in good-faith negotiations with our unions, and that remains our intent.
To that end, we have filed two proposals with the union, the second of which was filed Tuesday of last week, which calls for a base wage of $12.50 an hour for production workers and an all employees benefit cost of $21 an hour. So the fundamental task is to be treated equally with other American suppliers with whom we must compete and to have comparable wage and benefit costs with those unionized competitive suppliers. Without that, we would have no choice but to close our facilities eventually. That is because, in our bankruptcy process, we would not be permitted to continue subsidizing loss operations. It's either fix them or close them.
I brought a couple of charts to underscore a couple of points. This is a comparison of Delphi's wage and benefit costs (with legacy costs). Here it shows they are $76 an hour -- the $27 of base wage and $27 of wage-related benefits like vacations and so on. Then the legacy cost is the fact that we have a lot of retirees and an under-funded pension plan and so on that need to be considered.
We have made the proposal of $12.50 an hour and what we figure is $8.33 of benefits for active (workers). And that would bring us to $21 an hour. The point of this is that it is in line, though higher than many, in line both on base wage and benefits with the people with whom we compete. We've indicated here that many of them have the same unions that we have.
Q. What are the names of some of those competitors?
A. We did not selectively choose a couple of weirdo mom and pops. These are all the multibillion-dollar competitors. They include Lear, Johnson Controls, Collins & Aikman, Bosch, Siemens, Denso. These are the people we have to bid against for business. And so this is a for-real set of competitors, not a carefully cherry picked set.
What you see here is that union and nonunion, it doesn't make a lot of difference.
Now we did make a previous proposal to the union that was at a rate of $9.50 or $10.50, call it an average of $10 an hour for our production workers. What we did there is we said we've got some legacy catchup to do.
We now have decided that instead of taking that approach, we would deal with this in some way yet undefined in our bankruptcy process. Just like we would consider our bonds are a legacy liability, we would consider the pensions to be a legacy liability. It could be worked out with General Motors. It could be worked out with PBGC (Pension Benefit Guaranty Corporation). That allowed us the flexibility to put down a $12.50 number here.
Is this a fixed, firm and final? Frankly, I don't know how to go to a total above $21 an hour without that being a plan to obliterate (Delphi) because we won't be able to compete for new work.
As to the mix between the wages and benefits, we can certainly have discussions with the union.
Here's a new chart. All of the news stories that I have read focus on this bar to this bar (current wages and benefits compared with proposed wages and benefits). They say, "Wow, what a steep drop in income for those workers." And it is. This will be thousands of very difficult transitions for our working people because they had every right to expect that the current social contract would continue indefinitely, which includes the 30-and-out and includes everything else they got. Then all of a sudden, events have overtaken them. That's an issue. It's certainly a major focus.
What almost nobody has done is lay out a comparison of what this means compared with what everybody else in the industry is doing. There's no rioting or tar and feathers brought out for the CEOs of these places (U.S. competitors). These are contracts that the unions apparently are proud of, and that's life in our industry.
If we're going to get any new business and keep our plants open, we need to be in this (wage and benefit) range (like other competitors).
There's been a lot of discussion about how this is the end of the middle class. Here's a chart that I call: This is the middle class. We've taken each of the regions where we have plants and gone to the Bureau of Labor Statistics. This is not something I made up. These are government statistics of what various classifications of what manufacturing workers make. In the regions where we have factories, the average base wage is $11.91 (an hour). So again, when an offer of $12.50 is characterized as the destruction of the middle class, where are all these people? They are people I regard as the middle class -- manufacturing workers throughout the eastern half of the United States.
Q. One of the traditional benchmarks that people around here use is "Well, the workers are no longer going to be able to afford an automobile." Henry Ford's $5 a day idea is dead.
A. I've been to many of the factories that are represented on that chart. You know what? The workers drive cars to work from their homes. Somehow they do it. The difficulty is managing (expenses). You've got car payments and mortgages based on this (current wages) and you now have to change here (proposed wages). That's going to be extremely difficult for our people. But the fact is most of the rest of these (factory) people are making do.
Q. What does the union say when you show them what they approved around the country?
A. You've heard what the union has had to say about this. These charts were attached to our proposal last Tuesday. We've been saying this in words for several months as we tried to encourage them to do something. They've made no counter-proposal. My notion of how a discussion and negotiation should work is that each party should propose a resolution to the issue. I don't think there's any doubt as to what the problem is here. How to deal with it is an issue.
Q. The counter-proposal seems to be the leak that the United Auto Workers has a $1 billion strike fund.
A. Yes, I don't underestimate the political problem it has in helping its membership make this transition. I've said many times that between myself, (General Motors Chief Executive) Rick Wagoner and (United Auto Workers President) Ron Gettelfinger, my job is the easiest. My problems are more urgent, Rick's are more serious and he's dealing with them constructively, and Gettelfinger's got the toughest job of all in this town because he has to help his membership make a transition. And these issues aren't limited to Delphi. They include General Motors. I was very admiring of Rick's press conference. He is doing the same thing that I am doing, and that is facing up to reality, which is his need for market capacity -- dealing with it in a open way and dealing with it in a bold way. He expressed that he will need to work the transition out with the union leadership, and those are all the same things I'm saying. We are on very parallel courses. GM, we believe, will emerge from what it's doing today as a much stronger competitor and therefore a much more viable customer for us.
Q. One difference between the two paths is you've got a bankruptcy court date that you can hang yes or no answers to -- Dec. 16 and the judge decides on Jan. 24.
A. No. Let me go through it. On Dec. 16, in the absence of some change in the nature of this process, we will be filing a motion. But on Dec. 17, life will still be the same. That is, we will continue to honor our labor contract, as we have up to now. We will not be seeking emergency relief. We will continue to negotiate if the negotiations have not borne fruit by that time. The hearing will be scheduled for Jan. 24. It is theoretically possible but in my mind inconceivable that the judge would rule from the bench, even though I also believe we have a slam-dunk case for our motion, which is we cannot restructure this company at those labor rates. But the judge has up to 30 days to give a ruling, and it is in the nature of bankruptcy judges to encourage the parties to negotiate and come to their own resolution while there is still time.
There is no doubt in my mind that I would strongly prefer to find a negotiated resolution without the necessity of a court-ordered rejection of our labor contracts. ... All (the judge) can say is, reject or not. ... What I'm not sure of is whether the union (officials) feel the same way. You would have to ask them.
We would have the right, but not the obligation to impose the new conditions. And the union would have the right, but not the obligation to go out on strike.
Q. There has been some threat that the union might go out on strike prior to that.
A. Legally, it cannot go out on strike over wages and benefits that we're in discussions about but not have been imposed. If there were considerable unrest, or if it was to find some other pretext for a strike -- it could make up something -- a safety issue...
Q. Has the work to rule affected output at all?
A. No, we have not had any impact on any customer whatsoever, and are continuing to produce with outstanding quality. I actually want to congratulate our work force. As angry as they are at the message that I am delivering about future prospects for wages and benefits, they are nonetheless seemingly in a mood to show us how good they are.
Q. I've read that you've received hundreds, if not thousands, of scathing e-mails from employees. Are they interested in staying to work for Delphi if you equalize the wages like that, or are they looking to find other jobs?
A. Other than the fact that you've got a huge retraining problem, there is no issue as to whether you would find people willing to work for the offer we're making. One or two of them have said in anger that I'm not going to do this job for a lousy $10 an hour, which by the way is no longer the proposal. Most of them are simply coming from a sense of entitlement: Mr. Miller, I've worked here for 20 years. This is what was promised to me, and you are a bad person for taking it away from me. It's also the personal hardship this would wreak on people who do have mortgages and car payments and maybe kids in schools whom they need to support, and they don't know how they are going to do that with the sudden drop in wages.
The next thing is that the e-mails I get are from all stripes of hourly and salaried, from people who have five to 10 years in the firm who have quite a different view from those who have 29 to 32 years of service, and all they really want is, "Just don't mess with my retirement. I'll do whatever you say."
One of the things that Rick (Wagoner of GM) was talking about at his press conference today that might be relevant to our situation is the notion of buyouts, buydowns. He doesn't have buydowns; we might end up with that. That has come up in speculation about how the Delphi situation might be resolved. We are in bankruptcy, and we cannot afford to keep subsidizing this. Our competitors won't let us do unusual things. But it is possible in our discussions with our primary customary who is involved in this, General Motors, that we might work something out with General Motors that would provide soft landings for our people. General Motors is the contingent guarantor of the retirements for a lot of our people. And so an assured retirement may be attractive to many of our people versus working for a much reduced wage.
This is, like it or not, a three-party negotiation. That is because most of our senior people went to work for the General Motors Corp. One day in 1999, we took that label off their shirt and put a Delphi label on it, but many of them still think of themselves as part of General Motors. Between that attitude and the significant customer relationship and the retirement benefit guarantees, there is no way that this is going to be resolved without some significant input from GM. Trying to have a three-way conversation is always awkward, and GM's got other things on its plate. ... But the resolution for Delphi will include participation from GM.
Q. How would you judge the business climate in Michigan and in terms of taxes?
A. The environment has been not as good as some of the other states, but the governor and the Republican Legislature I think are really trying to improve the business friendly nature of our state. I've been very pleased by the reaction of the political leaders in a number of the states we operate....
Q. Should Gov. Jennifer Granholm pass the Single Business Tax cut package (she vetoed it Monday)?
A. She told me two weeks ago that she had worked out something with the leadership, but somehow it feel apart again. ... I can't answer you right now. I've lost track of where it stands.
Q. Granholm has set out a relief package that included not having a free trade agreement with Thailand to allow in more pickup trucks, and some pension and health care reforms. Have you found any of those options attractive?
A. I haven't been into the details of what she was laying out. I think it's a good thing that she's trying to organize our public leaders to consider public policies that can help stem the loss of American jobs. The fact is, in America, we put too much of our burden of social costs on the back of the process of production. What do I mean by that? Income taxes, wage taxes, corporate taxes, the whole nature of our health care system and our pensions are all a financial burden on producers. The problem is you're dealing in a global economy. (Those who) export into our country from other nations are basically coming from a consumption tax-based economy that can support their social programs in Europe or Japan.
The exporter avoids many of those taxes and comes here and sells against a producer who is burdened with those taxes. So it's not surprising that we have lost a lot of job losses. Changing the tax system won't stop globalization. There will still be comparative advantages for this and that. But I think some of the job losses in the U.S. are due to the fact that we put too much of our social burden (on companies). If we had more of a consumption tax-based economy in this country, it would level things out between importers and domestic producers that would be to the advantage of those providing jobs to Americans.
Q. You've reportedly had conversations with Sen. Hillary Clinton and others about health care. What are your thoughts. You're clearly a man who understands markets.
A. I did spell out in some detail on pensions what I think, which I think is contrarian to what the Senate just did last week. Both the accounting and contribution rules should be significantly tightened for those who want to have a defined-benefit pension program and have the government backstop (it). You should be under very strict rules to keep the funding up so we don't end up with companies getting into troubles. The accounting rules are so that we face the trouble, rather than hide the problem. The current accounting rules allow us to ignore the problems to a certain extent. It's not that anyone is keeping bad books. The rules themselves are way too soft in terms of how a burgeoning retirement liabilities are building up.
Second, the contributions should be much stricter. Now, it's in the nature of capitalism that companies will go through hard times. But the relief valve there in my mind should be the regulatory authority vested with the PBGC and its board to grant stretchouts tailor made to the individual corporate situation as opposed to Congress trying to write a one-size-fits-all stretchout. The one size fits all has the problem that it may save some of the current people in trouble but you just know that more people are going to get in trouble down the road.
Right now, (the pension guaranty agency) only has the nuclear option: Blow up your plan. Other than that, it just sits there as a very low person in the creditor group. If it had conventional weapons, it would be the ability to take collateral, insist on covenants, insist that benefits be frozen so they don't get away from you before you get them back under control. You could have a much more disciplined system. It wouldn't save the Delphi situation. It's too late to save the Bethlehem (Steel) situation or the United (Airlines) situation.
As for health care, I had a brown bag lunch down in Washington and I was talking about this general notion of health care and consumption taxes. Congressman (Dennis) Kucinich (an Ohio Democrat) says, "Well, Mr. Miller, obviously, then you are in favor of national health care. And instantly one of the Republican congressmen gets up and says, "No, he's not." I just said: Look, this is complicated. I need some time to think it through.
I think health savings accounts are on the right track. I think tort reform is a part of it. I think use of information technology to improve the quality of health care (is a part of it). There are a lot of things we can do to make the problem smaller. I'm not quite ready to cast my vote for national health care, but our current system is way too expensive. And the way it gets piled on employers is hurting us in terms of job creation....
Q: One of the things some of the workers were upset about your comment about paying a worker $65 an hour to mow Delphi's lawn. Do you now regret making that comment?
A: Yes, I do. Not because it was mean-spirited in intent. It's related to something we haven't yet talked about. We have a lot more people in our plants than any of our competitors would have for the same work. That is because we have work rules, job classifications, outsourcing restrictions all designed to increase the number of jobs at a facility, but that is a further part of our cost penalty. And it will not be enough for us to merely take our benefit package to $21. Part of our proposal is to get rid of 50 years' accumulation of antiquated work rules that are what I call productivity inhibitors. ...
We need to deal with the productivity inhibitors, and one of them is the ability to outsource non-core, unskilled seasonal jobs. So that particular remark was aimed in part at $65 for... I was trying to pick an extreme example of an unskilled assignment that we are required to use a full-time year-round work force for a seasonal unskilled job like lawn mowing. So I blurted it out.
Clearly, the workers took it as an insult to the significant skills and training that's required to operate some of the sophisticated machinery we have inside the plant. Am I sorry I said it? Yes, not because I have an insulting intent. I'm only sorry that they took it as an insult. ...
Q. How much market share has Delphi lost to these U.S. competitors?
A. We haven't won any business at these (U.S.) plants. Any business that we have gotten basically has been at our non-U.S. plants. We have come out of nowhere to where we now have $14 billion a year of non-U.S. (work). The non-GM business is up to 53 percent in the third quarter, and that's up from less than 20 percent when this company was formed.
Rick (Wagoner) says he is paying a $2 billion premium to Delphi compared with what he would be paying if he could globally source. That was part of how Delphi was carried to this point. But nobody else other than GM has been willing to pay a $2 billion a year premium for the privilege of sourcing with us. We're good, but we're not that good....
One thing you haven't asked about is whether we will shrink the number of U.S. jobs even if we get what we proposed.... And the answer is yes, there will be a significant shrinkage. We do have a significant part of our production base in the manufacture of parts which cannot be made even at $10 an hour. A big one we can't make any more is spark plugs. Things like that are going to be made in low-cost countries, and there's nothing we can do about it.
There's a lot of other things that are not so labor-intensive and very high value and very bulky, like an engine manifold cover with all the electronics. Those things I believe will be made in North America, because you cannot afford the logistics, you cannot afford a long pipeline with that much value for a product that is technologically changing all the time.
We would like to be able to compete on an ongoing basis for that business. And we can at $21 wages and benefits.
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