Delphi — the bankrupt auto parts company — has reached a deal with the United Auto Workers in which longtime employees would give up at least one third of their salaries.
The agreement is a sign of the times in the age of global labor competition. It's also sets the stage for epic contract talks this summer between the union and Detroit's Big Three automakers.
The union was going to have to give up wages. The only question was: How much?
In the end, it agreed that the wage scale would go from a high of $27 an hour to a range of $14 to $18.50 an hour.
If union members ratify the deal, it will mark a big retreat for the once powerful United Auto Workers. But given pressure from lower wage labor both here and abroad, there didn't seem like much choice.
David Cole, chairman of the Center for Automotive Research, an Ann Arbor, Mich., think tank, says that if a Delphi parts worker in the United States makes $27 an hour, a comparable one in China might make $2 an hour.
"From a practical standpoint, the wage cost in China is essentially zero," Cole says. "It's so small compared to our wage structure."
The cuts could have been worse. In the beginning, Delphi said it wanted to slash salaries by two-thirds. If the union had stood its ground, a bankruptcy judge might have imposed tougher conditions and sparked a strike.
As it is, Cole says, the company has actually agreed to give longtime workers a lump sum payout to take the lower wage or leave.
"So it's a pretty good deal," he says. "If you're going to retire in a couple of years, an extra $40,000 or $50,000 now is not bad. There is obviously going to be some pain just because of the differences that exist. But ... we're in a brave new world right now where the past is not an option."
Gary Chaison, an industrial relations professor at Clark University in Massachusetts, says that by agreeing to the deal, the union is signaling Detroit's car companies that it's realistic.
"I think the negotiations between the UAW and Delphi are tremendously important because they set the tone for the negotiations [with] the Big Three. And they have really established a pattern here. And I think they can say, 'We have shown a willingness to be flexible, but at the same time we have shown a willingness to bargain tough.'"
In July, the union faces off against Ford, Chrysler and General Motors in what could be the most important negotiations in its history.
The companies have lost market share and billions of dollars in recent years. Instead of wage cuts, they are expected to go after ballooning health care costs that have hurt their competitiveness with foreign companies like Toyota.
Chaison says union negotiators are in a tough spot.
"They are under tremendous pressure by the companies to give in and cut costs. And they are [under] tremendous pressure by their workers to not make any more concessions."
Chaison says union workers are despondent over recent cuts in jobs and benefits.
The question, he says, is whether they become angry with their leaders.