October 8, 2005
Another Bankruptcy Filing: Is it Good for America?
As anticipated, Delphi, north America's biggest automotive parts maker and No. 63 on the 2005 Fortune 500 list, today filed for bankrutcy under Chapter 11. Click here for more details. Delphia claims that its wages are way our of wack -- the average worker makes $65 a hour in salary and benefits and the company says it can only pay on $25 a hour. This is a huge disparity and one wonders how it developed so quickly. The most interesting feature of the current public posturing is the statement of the CEO of Delphi, Robert S. Miller, that Delphi will continue to fund the company's pension plan as long as the UAW agrees to substantial pay cuts:
If the union says, "no, I don't want to give on wages and benefits" and we come to some kind of compromise where we are break-even instead of profitable, then you can kiss the pension plan goodbye.
In the background is a GM guarantee to pay selected Delphi benefits if Delphi files for Chapter 11. GM, which owened Delphi until 1999, offered the guarantees to smooth the way for the 1999 spin-off.
Based on the recent Fortune article "Three Cheers for Bankruptcy," the filing is apparently good for America. As the article puts it:
Yes, corporate bankruptcies pad the pockets of lawyers, executives, and vulture investors like Ross. Yes, they keep alive companies that might be better off dead. Yes, they are enabling the sometimes shameful dismantling of the corporate pension system. But the silver lining shines bright: Chapter 11 encourages risk taking, helps the economy adapt to changing times, and helps companies rebound from past mistakes. American business wouldn’t be where it is today without it.
Interesting take, but debatable.
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