A Middle Class Made by Detroit Is Now Threatened by Its Slump
Belongs to an Older Era;
Realities of Globalization
Staff Reporter of THE WALL STREET JOURNAL
November 14, 2005; Page A1
COOPERSVILLE, Mich. -- Chris Brown needs to have a talk with three of his kids before the end of the year. He plans to tell them he probably won't be able to help pay for college anymore.
Mr. Brown, 47 years old, earns $26.09 an hour working the midnight shift at Delphi Corp.'s plant here, assembling fuel-injector parts. His pay, combined with generous health benefits, afforded his family a comfortable, middle-class lifestyle with enough left over for extras. But the troubled auto-parts maker -- which filed for bankrupty protection last month -- is restructuring and Delphi's U.S. factory workers will likely see their total wage package cut in half or more.
Mr. Brown doesn't have to look far to see what his future holds. His younger sister, Penny Austin, had a similar conversation with her children in late 2003 when her employer, auto-seat maker Lear Corp. slashed her pay to $18.64 an hour from $26.40. It also cut her benefits. "Christmas won't be the same anymore," she recalls telling her two kids. Mrs. Austin, 35, the family's biggest breadwinner, recently learned that Lear plans to close her plant. Another Lear facility nearby may be hiring -- at $12 an hour.
For earlier generations of auto workers, these jobs were more stable, better paying and came with gold-plated benefits. One beneficiary is the siblings' father, Adrian Brown, 72, who retired from General Motors Corp. after a 32-year career there. Under a recent deal between GM and the United Auto Workers union, he'll have to pay premiums on his health care for the first time.
"I don't want to complain because I will still be able to afford my house," says Chris Brown, sitting in his living room across from his sister. "I know, I know, we are blessed," she interrupts, as tears roll down her cheeks. "But it has felt like a slow death between the pay cut and now this with the plant." As she talks, tears well up in Mr. Brown's eyes, too.
The Brown and Austin families are among hundreds of thousands of people in the industrial Midwest who until recently were largely shielded from the whirlwind competition spawned by globalization. As blue-collar workers in textiles, chemicals and steel saw their paychecks shrink and jobs head overseas, auto workers and retirees were still setting a standard for the American middle class. They earned enough for a good home in Ohio, Indiana or Michigan, along with a couple of cars and maybe a boat or a Florida vacation.
But since 2001, Detroit's Big Three have been scrambling to keep up with Asian and European rivals. Over the past two years, new competition and higher gas prices have hammered sales of Detroit's most profitable vehicles. Auto giants started demanding that suppliers match prices offered by producers in lower-wage countries, or as Detroit dubbed it, "the China price." The downward price spiral has left several auto suppliers in bankruptcy and spurred painful changes at car makers.
The result: a collapse of the grand bargain between employees and employers that dates back to Henry Ford's promise of a $5 workday, paid vacations and generous health care and pensions. Back then, the auto industry helped elevate plant workers into the American middle class. Now, as it cuts wages and benefits -- not to mention jobs -- a sizable chunk of America's Midwest is being forced to step down a rung or two on the socio-economic ladder.
"The fact is, globalization, technological change, low-cost competition and deregulation mean there is no safe haven anymore, not even for the auto industry," says Robert Reich, an economist and former Clinton administration labor secretary.
Mr. Reich loosely defines middle-class households as those with an income of $35,000 to $75,000. He says auto-plant workers, despite being promised increasing wages and security in retirement by their employers and their unions, will increasingly fall into the working-class range of $15,000 to $35,000.
The U.S. auto industry, which employs about one million people, won a reprieve from global competition in the 1990s thanks to the surge in demand for sport-utility vehicles and pickup trucks. Most of those vehicles were built by GM, Ford Motor Co. and DaimlerChrysler AG with parts made by their U.S. suppliers. The SUV boom pumped billions into their bank accounts and helped paper over the industry's long-term structural problems, notably the high cost of labor and long-term health-care liabilities.
In those days, when auto makers tried to press the UAW for concessions, the union refused. In 1998, a cost-cutting effort by GM prompted a costly, three-month strike. After that, auto makers and the UAW generally opted to keep factories rolling rather than fight over issues that didn't seem pressing.
But now, after the collapse in sales and sudden exposure to competition from overseas, high-wage manufacturers such as Delphi have ripped up their labor agreements. About 25,000 UAW workers at Delphi once earned the equivalent of about $65 an hour in wages and benefits. Delphi now wants its hourly workers -- 34,000 in total -- to accept pay and benefits packages totaling between $20 and $25 an hour. Delphi wants wages to fall from about $26 an hour to about $9 an hour.
On Dec. 16, if it hasn't reached a deal with its unions, Delphi can ask the court hearing its bankruptcy petition to void its existing labor deals. A judge can impose new contracts more favorable to Delphi in late January. Beyond the wage cuts, Delphi could eliminate about 30% of its union jobs. As a result, the UAW has made early concessions over benefits at other companies to try and avoid a repeat of this drastic scenario.
Under Pressure
The bankruptcies of Delphi and plastics-and-fabrics supplier Collins & Aikman Corp., which employs 23,000 people world-wide, could cascade through the sector. If Delphi and Collins slash wages and move plants offshore, rival auto-parts suppliers could feel pressure to follow suit. Visteon Corp, which employs 18,000 workers, was recently bailed out by Ford and its future is uncertain. The airline industry recently experienced a similar dynamic.
This is one reason why investors such as billionaire Wilbur Ross are zeroing in on the auto-parts industry. But even Mr. Ross, who made billions during the steel industry's restructuring, says the implications for workers trouble him.
"Historically, these jobs had been some of the premier industrial jobs in the country," he says. "I really do worry and hope some semblance of the American standard of living can be saved for these folks."
Trouble in the U.S. auto industry is leaving thousands of workers, especially in the Midwest, either without jobs, or with jobs that pay less than they did in the 1990s. The number of people working for auto-parts companies has fallen 20% to about 669,000 today, compared with 840,000 in 2000.
The region hit the hardest, say economists, is the 450-mile radius around Detroit, where plants were built to be a day's drive from Motor City. Michigan alone has lost 71,000 of its auto-parts jobs since 2000, out of a total of 226,000, according to the Federal Reserve Bank of Chicago. Also hit hard are Ohio, Indiana, Illinois and the Canadian province of Ontario, just across the border.
Auto-parts pay has stagnated the past three years at about $20 an hour, a flattening not seen in other manufacturing sectors during the same period, according to the Bureau of Labor Statistics. Accounting for increased gas and health-care costs and falling retirement benefits, total compensation for these workers has probably fallen.
A Role in Politics
The job losses in Michigan and Ohio could play a role in national politics. The combined 37 electoral votes in those two swing states were up for grabs until the final days of the 2004 presidential election. Michigan has been reliably Democrat in presidential elections, but gave Sen. John Kerry only a narrow 51% to 48% victory in 2004.
Michigan's Democratic Gov. Jennifer Granholm is stuck with the nation's fifth-highest unemployment rates, 6.4%, and is up for re-election in 2006. She's supporting legislation that would give interest-free loans to any student who studies in fields such as engineering and stays in Michigan after graduation.
Chris Brown never intended to be an auto-parts worker. He went to school to become a teacher or to work in government. He got a bachelor's degree in political science and economics from Calvin College, a Christian liberal arts college based in Grand Rapids.
"I thought I'd work in Lansing or Washington, D.C., but I downsized my dreams when I had the kids," says Mr. Brown, who sat on his local city council for 14 years and has served as an elected UAW official. He's back in school now, earning a master's degree in public administration. He's paying for the education himself and isn't planning to cut back.
When Mr. Brown graduated in 1981, the only job he could find was in a cafeteria making $10 an hour, the same wage Delphi is now proposing he accept. In 1984, a job opened up at the Coopersville fuel-injector parts plant then owned by GM, paying $15 an hour plus full benefits.
Mr. Brown's father, a longtime GM worker, said he could get his son the job. Mr. Brown's second child had just been born two months premature. "The whole reason I took this job was for the health-care benefits and what it could do for my family. We had a hospital bill of $35,000 that had to get paid," says Mr. Brown. He was a GM employee until 1999 when the auto maker spun off Delphi.
His plant, which employs 570 hourly workers, is located on a tree-lined street with fruit stands, several churches and small, brick homes. Mr. Brown lives less than a mile from the plant. Coopersville is about three hours from Detroit, in a Republican-dominated part of Michigan.
The job as a machine operator let Mr. Brown transform his family's lifestyle. Their two-bedroom, 900-square-foot, aluminum-sided bungalow is now a four-bedroom, 2,000-square-foot home. The wood-floored living room and dining room is filled with plants, small pumpkins and a wooden cuckoo clock that sings every half hour. A sign out front says "Busy Mom Sewing," alerting the world to Mr. Brown's wife, Kathy, a full-time seamstress. They have three automobiles: a 1989 Dodge Caravan minivan, a 1992 Dodge Ram pickup truck and a 1996 Dodge Intrepid. All have 150,000 miles or more on the odometer.
The family took infrequent vacations, preferring to use their extra money on functions with the local Catholic church. They did take one extended vacation this August, a two-week trip to Ireland to show Mr. Brown's parents "where they are from."
At the end of this year, Mr. Brown says he plans to sit down with one daughter and two sons and tell them he can no longer help pay for tuition or books. He's also planning to tell them not to quit school. One son has just graduated. His daughter is studying to be a veterinarian and another son is studying computer engineering. The fourth child is starting community college, but hasn't decided what field to pursue.
Mr. Brown says he hasn't been sleeping well lately. Like many Delphi workers, he questions why his wages, and not management, are blamed for Delphi's problems. "I've been well-compensated, but I don't feel I should apologize for it," he says. "I'm not an unskilled laborer, nor are my co-workers. The company knew they had these legacy costs, why didn't they set aside the money for it?"
Delphi's new chairman and chief executive, Robert "Steve" Miller, says the company made a "good-faith effort to outrun a labor-cost issue that has become unsustainable. We no longer have the cash resources to pay premium labor costs...We have to face reality."
Mr. Miller acknowledges the difficulties Delphi's work force faces but says workers have to make sacrifices just like others with stakes in the company, such as its bondholders. The notions of industrial workers being taken care of for life no longer works, he says.
"Delphi is a flashpoint, a test case, for all the economic trends and social trends that are on a collision course in our country and around the globe," Mr. Miller says.
A former labor negotiator for Chrysler Corp., he has been through this process before. As head of Bethlehem Steel in 2002 during the steelmaker's Chapter 11 restructuring, Mr. Miller streamlined the company's operations. He also terminated its $3.7 billion pension plan before selling the business to financier Mr. Ross.
Mrs. Austin has spent the past 22 months going through the cost-of-living crunch her brother is about to face. The first thing she noticed was how much faster bills piled up. She also had to quit giving her kids Megan, 16, and Tyler, 14, a "20-dollar-bill so they could go to a high-school football game or whatever." Her husband, Jeffrey, 41, has a job in car repossession, but it doesn't pay as much as her job with Lear once did.
The family stopped going out to dinner and Penny gave up collecting candles and dishes. She's also looking to get rid of one of her family's four cars. In 2002, before her wages were cut, Mrs. Austin and her husband bought their first new automobile, a Lincoln Town car.
"What's hardest is I liked being able to spoil my kids or spoil my [nieces and nephews], to buy them things. That was part of my self-worth I guess. I liked buying things for other people and now I can't," she says, wiping away some tears.
Because of crying episodes like this one, Mrs. Austin says she rarely talks about losing her job. She did bring it up to her kids recently, a story which makes her laugh because her son "got all happy when I told him. He was excited mom would be home more and I could take him to school in the morning."
Her Lear plant, located in Grand Rapids, a few miles from Coopersville, used to employ 3,000 people, notes Danny Rau who owns the nearby Danny's Beverage, a liquor store. He recently laid off two assistants. "We don't get all the guys in here at lunch buying lottery tickets and cigarettes anymore," says Mr. Rau.
The plant's nearly empty parking lot is becoming overrun with weeds that crack the cement. The yellow rails that run around the border are chipped. The plant officially closed last week and Mrs. Austin and some other workers will stay through the end of the year helping close the place down. They'll also receive a $50,000 buyout, money Mrs. Austin says she'll use for rent and some utility bills.
Mrs. Austin and her family live in a 3,600-square-foot house on a nearby farm owned by her mother and father, Judie and Adrian. Judie says she depends on rent paid by her daughter's family to pay some bills. The older couple raised eight kids on Adrian's three decades working for GM and now have 27 grandchildren. He retired in 1998.
In preparation for the coming changes, Penny's teenage son Tyler is planning to pitch in. He's going to grow soybeans and winter wheat on 15 acres of the family's farmland.
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