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Sunday, October 30, 2005

Delphi's Steve Miller: "What Went Wrong"

A quote from Miller's speech, published in the Detroit News.


Steel, airlines, and autos. Different industries. Similar painful transformations.

What these three industries have in common is an implied social contract that has evolved over the past half century between oligopolistic competitors, in capital-intensive businesses, and fostered by workforces organized by strong centralized labor unions. With the enormous leverage inherent in the threat of prohibitively expensive work stoppages, unions in these industries were able to elevate their workforces above the standards enjoyed by most other Americans, while their employers passed along the costs to customers.

Elaborate defined benefit retirement programs, spurred on by favorable tax treatment, saddled future managers with growing burdens. Back in the days when you worked for one employer until age 65 and then died at age 70, and when health care was comparatively less sophisticated and inexpensive, the implied social contract inherent in these defined benefit programs perhaps made some economic sense. It no longer works in today's economy.

In the steel industry, we were being run off the road, not so much by imports, but by domestic competitors such as Nucor and Steel Dynamics. They paid equally good wages, but needed half the labor hours per ton to do the same job. You may have seen the fine article in last Saturday's NYTimes about Bethlehem Steel. Now part of Mittal Group, there are 8,000 well paid workers producing the same tonnage that 12,000 workers did just three years ago. How can that be? The elimination of antiquated work rules and job classifications is the biggest part of the answer.

In the airline industry, Delta and Northwest were shot down by Jet Blue and Southwest, not Air India or Air China. Worker productivity is a big part of the difference.

And in the auto industry, Toyota, Nissan, and Honda are competing from assembly plants in our back yard, but without the crippling work rules and social costs embedded in Big Three labor contracts. In each case, the old oligopoly has crumbled, not so much from globalization, but from upstart domestic competition.


In the midst of these trends, the unions in the traditional steel companies and the traditional auto companies successfully bargained for 'thirty-and-out'. The theory was, create more jobs by retiring people sooner. And isn't working thirty years in a factory enough? What this means is that people can start work at age 20, retire at age 50, and expect full pensions and health care until age 90 or so. In real terms, this idea says that you will enjoy the fruits of your labor for more years than you were actually at labor. As a society, somebody has to pay. And to the shock of the Big Three automakers, they've found that consumers won't pick up these costs when they have choices. As someone said, buy a Hyundai and get a satellite radio as an option. Buy a Chevy, and social welfare comes as standard equipment!

Read the whole thing, it is very interesting stuff.


Anonymous said...

This is a large part of the problem. I saw a 15 minute job to reconnect a loose connector on a line require 4 skilled trades sequentially chased and rounded up over 4 hours. The line was dead the whole time. The lost production far exceeded the wages.

But Miller is not emphasizing the cost of not being allowed to shed workers. This cripples everything. Engineers do not work as hard to improve efficiency because there are no gains. Managers do not work as hard to get capital to improve efficiency because the line workers on layoff are dead weight. I think this albatros has been one of the biggest problems.
To gain profitability, the cost savings are all focused on parts cost reduction.

Anonymous said...

As a former Delphi engineer in manufacturing, responsible for some of the most advanced steering systems equipment ever designed and developed, I strongly disagree.

As part of key engineering teams, we worked our backsides off developing equipment that was lean, efficient, cost effective, achieved labor linearity, met ergo requirements.

Management teams constantly drove improvements. We never stopped reducing waste, implementing lean, and driving out cost.

Of course cost savings are focused on parts cost reductions. Whether design, manufacturing, system, or infrastructure costs, all contribute to the cost equation.

Miller is emphasizing the cost of the Jobs Banks and absenteeism.

Yes there are huge issues with the skilled trades and intransience in the work force.

Hard to imagine that Delphi has 4000 workers on waivers, paying benefits and 90% of base pay. Some of these folks have been collecting for years.

But the engineering staff and managment teams in Saginaw have not given up, and won't. I know them to be the best among professionals that I have had the pleasure of working with.

Blue Cross of California said...

Great blog I hope we can work to build a better health care system. Health insurance is a major aspect to many.