Delphi’s White Collar Workers: Collateral Damage for the Auto Bailout?
Published: Tuesday, 6 Mar 2012 | 11:47 AM ET
Scarborough Capital Management, Inc
President Obama rightfully assumes credit for the auto industry bailout, a political victory that saved 1.5 million jobs and likely prevented another depression. Unfortunately, over 20,000 non-union salaried Delphi workers were left behind, their pensions sacrificed at the altar of forgiveness.
Injustice is rarely assembled in an instant; this did not happen overnight. Delphi was spun off from GM in 1999, and unable to function without its main parts supplier, agreed with the unions to “top off” the hourly workers’ pensions should Delphi ever file for bankruptcy, making them whole for any future shortfall.
The salaried, or white collared workers, were not afforded such luxuries, a striking development when Delphi filed for bankruptcy in 2005 and all but stopped making contributions to the pension plan. As the company accelerated layoffs, benefits were paid out earlier than actuarially expected and exacerbated the pension deficit.
Once Delphi emerged from bankruptcy in 2009, the Pension Benefit Guarantee Corporation, an independent government agency that insures retirement incomes, terminated the underfunded defined benefit plans for both hourly and salaried personnel. But unlike hourly workers, whose shortfall between PBGC payments and promised benefits were accommodated by a deal struck 10 years earlier, non-union members suffered a 30 to 70 percent haircut, while the health and life insurance benefits of retirees were also discontinued.
Years of bad deals had essentially coagulated to form inequitable distributions. The expedited auto bailout of 2009 saw the government rescue General Motors, who in turn honored its agreement with the unions, albeit with taxpayer funds. Salaried workers had no such arrangement, and even though they worked for the same company, sustained hardships their union brethren were spared.
In retrospect, the president was assailed by his political counterparts in 2009 for his efforts to save the auto industry, as leading Republican figures believed GM should be left to market forces despite the absence of private financing. The notion that white collar pensions could have been subsidized in the face of such vociferous opposition seems unimaginable. It’s also worth noting that had GM’s deal with the unions been scrapped (it may not have survived normal bankruptcy proceedings), Democratic support would have evaporated.
Throughout it all, the Delphi Salaried Retirement Association (DSRA) believes the government picked the winners and the losers, choosing to indirectly finance union benefits with no regard for salaried workers. One could reach the conclusion that union and non-union members were treated differently by virtue of inaction, the treasury department fearful of setting a costly precedent for other unfunded pension plans.
What we do know for sure is that GM is now the number one automaker in the world and the economy did not collapse as some had feared. That there’s a price to pay for everything, and a portion of the bailout’s success was exacted from the flesh of Delphi’s engineers, secretaries and floor supervisors, collateral damage for the greater good of economic growth.
Lo and behold, GM white and blue collar employees are slated to get $182 and $332 million in bonuses respectively after record 2011 profits. How’s that for irony? To suggest that no solution exists would be disingenuous. After all, if the government can save an auto industry that represents three to four percent of the economy, one would think 20,000 workers can receive their full pension.
Ivory Johnson, CFP, ChFC, is the director of financial planning at Scarborough Capital Management, Inc. and has over 20 years of investment experience. Mr. Johnson attended Penn State University, where he received a Bachelor of Science degree in finance. He can be followed on www.IvoryJohnson.com.