Burning the Furniture

Steve Miller, CEO of newly bankrupt U.S. car-parts maker Delphi Corp., has always known how to cut the tension in difficult situations. Last month, with Delphi in feverish (and ultimately fruitless) negotiations for a bailout from General Motors, Miller found himself sitting beside GM CEO Rick Wagoner at an executive confab in Washington. Miller's BlackBerry buzzed. It was a flaming e-mail from an employee. "You are a rapist and a pillager and a thief of the working man's rights," it read, "and may you rot in hell." Miller showed it to Wagoner, saying: "Hey Rick, this one's for you."

His gallows humor aside, what Miller has to say is no laughing matter. The corporate fireman behind bankruptcies at Bethlehem Steel and United Airlines is loudly proclaiming an uncomfortable truth: America's industrial giants are collapsing under the weight of pension and health-care costs. Spun off from GM in 1999, Delphi is losing billions because its hourly labor costs are at least three times as high as its domestic rivals'. Then there's the flood of cheap offshore car parts that will likely lead Miller to close several factories making commodity parts. "Paying $65 an hour for someone mowing the lawn at one of our plants," he says, "is just not going to cut it." NEWSWEEK's Keith Naughton sat down with Miller to discuss the wider implications of Delphi's bankruptcy. Excerpts:

MILLER: This is very much a test case for what may happen across the whole U.S. auto industry. The labor-cost issues that have driven us to exhaust our financial resources are also very much on the minds of the traditional Big Three manufacturers here in Detroit. At General Motors, they basically have declared they can't take it anymore; that's why they have been so focused on health care. This is a prelude to what's coming in 2007 contract talks with the United Auto Workers.

They have roughly $2,500 per car of labor-cost disadvantage with their foreign competitors. That's just not sustainable.

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Oh, yes. If Ford and GM are unable to modify their labor contracts, then they are very much at risk of spiraling down into an ultimate bankruptcy.

What I saw at Bethlehem Steel was a company that for 20 years continued to "burn the furniture" by selling assets to keep feeding the ever-growing legacy liability instead of putting it back into the business. I see that same deadly spiral threatening GM and Ford.

Back during the federal loan guarantees in 1980, I took the position with Washington that Chapter 11 would kill Chrysler. And there's still a bit of truth to that. When you are taking a plane flight, as long as you have confidence the government regulators are watching after safety, it's OK to buy a ticket from an airline in Chapter 11. But when you are buying a car, there's concern. "Will I still be able to get parts?" "Will my dealer still be in business?" When Chrysler was going through its difficulties, a lot of upscale, fashion-savvy people wouldn't come near us. They didn't want to be seen driving a car built by a bankrupt company.

This is not just a story about steel or airlines or autos, this is our country's dilemma as we talk about Medicare and Social Security. People are living much longer. Fifty years ago, if you didn't feel well, we could give you an aspirin and send you on your way. Today, we spend hundreds of thousands of dollars to keep you healthy. This is the beginning of what may become a generational conflict. Young people are not going to want to sacrifice their income, either directly or through taxes, so that people their grandparents' age can have a comfortable, well-cared-for retirement. These are huge national issues that I hope our political leaders are looking at vividly. What's happening at Delphi is just a small part of a huge national problem.

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When I leave here, there will be a group of people who will conclude that it's all my fault. Others will look at the same picture and say that there was no perfect outcome, but that I helped to preserve some vitality for America's auto industry and made it better than it was. But I sleep at night, knowing that I am doing the best I can to help what is a very difficult situation. And it's not just Delphi's situation, it's the whole country's.

Burning the Furniture | News