Deal Or No Deal

The Banker Wants to Buy Out the American Autoworker

By Dr. Duru written for One-Twenty

March 23, 2006

The arrangement and re-arrangement of the orchestra chairs on the Titanic we call the American auto industry continues. GM, Delphi, and the UAW have hammered out a somewhat complex deal offering to buy out as many as 131,000 workers. I have often written here about the persistent decline in GM's fortunes and the futility of their many sales gimmicks for goosing revenues (without profit!). This latest gimmick will certainly not be the last. GM and Delphi workers are offered formulas based on tenure of service and place of work to determine the amount of money and future benefits they can collect as an exit prize. Most interesting is that GM and Delphi are attempting to buyout younger workers as well. While folks near retirement are probably being offered a truly good deal since they get to retain significant retirement benefits, younger workers will get more limited retirement benefits. Assuming the cash offer ($140K or $70K) is not enough to last the several decades left to retirement, these workers will have to secure a new job. Now, I ask you...what other jobs in the forgotten places home to many of these hapless factories offer anything close to the cushion GM currently offers? Even worse, Delphi's CEO has already gone public with threats to squash hourly wages from the rooftops of $26 to the bargain basement of $12.50! You can bet that other industrial factories and the like are trying to figure out how to pull off similar moves. The universe of opportunities for skilled manufacturers will just keep shrinking - not to mention that we will witness the further decline in fortunes of the average worker and American family.

Just like the participants in the hit game show Deal Or No Deal, these younger workers face a roll of the dice betting a guaranteed short-term pay-off against the prospect of future turbulence at GM. From GM's perspective, the deal is a great one because it immediately truncates the ballooning perpetual annuity embedded in the contracts of these younger workers. From the worker's perspective, it is a poor deal without the prospect of a good job elsewhere. So, I suspect that the main people who will take GM up on the offer are those people who feel they can easily find jobs elsewhere. This "brain drain" will further reinforce the decline in GM's ability to improve its manufacturing skillbase (also exacerbated by the early retirement of large groups of highly-skilled, very experienced workers). The death spiral that GM cannot seem to escape will likely continue. They claim bankruptcy is not in the cards, but they sure seem like they are running out of options...and fast.

Be careful out there! ...and I say NO DEAL!

DrDuru, 2006