Delphi's Miller: At a "Flash Point"
Rare is the chief executive who sees putting his company into bankruptcy court as a landmark step toward overhauling an entire industry. Robert "Steve" Miller is just that. Named chairman and CEO of auto parts maker Delphi (DPH ) only three months ago, Miller had Delphi file for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code on Saturday, Oct. 8.
The cause he cited: the necessity of renegotiating labor contracts inherited from General Motors (GM ), Delphi's former owner (see BW Online, 10/08/05, "Time and Patience Run Out at Delphi"). The contracts require Delphi to pay too much in wages and retirement benefits -- some $65 an hour in total -- to survive, he says. Miller knows corporate debt restructurings well, having been involved with 10 workouts, starting with Chrysler in 1980. He guided Bethlehem Steel and auto parts maker Federal Mogul in their bankruptcies.
Miller also sits on the board of UAL (UALAQ ), the bankrupt parent of United Airlines. On Monday, Oct. 10, he met with BusinessWeek editors in New York to offer prepared remarks and to take questions on Delphi's filing. Edited excerpts of the conversation follow:
On becoming the boss of a failing company: I felt that taking this job would put me in a pivotal position to impact the restructuring of America's auto industry.
On the impact of Delphi's filing on the auto industry:
General Motors is headed down the same Chapter 11 path as Delphi, unless there is a dramatic change in their staggering legacy labor burden. Things are going to get messy for the Big Three automakers. Current labor agreements expire in 2007, and it will be a historical collision point for all of the social and economic forces at work. [Delphi's lower labor costs forced by the bankruptcy] are going to be sitting right there in front of them when they go to the bargaining table.
On being unable to get the United Auto Workers, Delphi's biggest single source of U.S. labor, and General Motors, Delphi's biggest source of revenues, to agree to sufficient concessions before resorting to bankruptcy: We talked about lots of ideas. At the end of the day, we couldn't come up with anything that was satisfying to everybody.
The UAW basically said we can do all of this as long as GM pays everything and makes everybody happy. GM said that sounds too expensive, and we never finished finding common ground.
On the jobs of GM Chairman and CEO Richard Wagoner and UAW President Ron Gettelfinger: Compared with Rick, my problems are more urgent. His are more serious. I wouldn't want to trade chairs with him.
The person I feel sorry for is Ron. He is going to have to help 500,000 of his members get through the next several years of dramatic change. Fifty years of ever-increasing pay and benefits is going to be forced into a retreat.
On the right way to file for bankruptcy: I said we would be well-financed, well-organized, and well-planned. I meant it. I was not going to run out of gas. We have the biggest debt-in-possession financing in history.
This stands in contrast to [competing auto parts supplier] Collins & Aikman (CKCRQ ), which tumbled into a chaotic bankruptcy that left customers on the hook for over $100 million in penalties to keep their assembly lines running. I will not allow this company to do that to their customers or their people.
On the common thread between the auto, airline, and steel industries: These three industries have in common a social contract, worked out over the past half-century with strong, centralized labor unions, to elevate their workforces with elaborate defined-benefit retirement programs.
Today, defined-benefit programs are an anachronism. These programs have a way of threatening the existence of traditional large employers. GM is a junk-bond credit and staggers under a burden of $150 million of combined pension and health-care retirement programs (see BW Online, 10/11/05, "Delphi's Woes Take GM Down a Notch").
On government retirement schemes: The overwhelming voltage in the political third rail of touching Social Security and Medicare will forestall corrective action for years. But the problem will only grow. I fear something like intergenerational warfare, as young people increasingly resent having their wages reduced and taxed away to support social programs for their grandparents' income and health-care concerns.
I want you to view what is happening at Delphi as a flash point, a test case, for all the economic and social trends that are on a collision course in our country and around the globe.