Couldn't the oracle see this one coming?

4/1/07

Last week at the pre-contract negotiation UAW convention in Detroit, President Ron Gettelfinger expressed disappointment at the slow pace of labor negotiations at Delphi. He presumably was expressing his disgust at the refusal of management to be conciliatory because, when asked what the union was doing regarding concessions, he stated “I’m though with that.”

One can understand Mr. Gettelfinger’s obdurate stance, given that among the first actions Steve Miller took when he assumed the reins of the bankrupt Delphi were to:

1. Ask labor to take a roughly 65% reduction in pay to $10 per hour, and
2. Reward the very executives who had guided Delphi on its odyssey to bankruptcy with huge bonuses and pay increases, arguing that doing so was necessary to retain top flight talent. Hmm.

One can also understand why Mr. Gettelfinger feels he can be so apparently recalcitrant. Appaloosa and Cerberus, two hedge funds who are attempting to purchase Delphi, have dropped a great deal of bargaining power into Mr. Gettefinger’s lap. Why they did it is a mystery.

The Cerberus/Appaloosa bid for Delphi is contingent on, inter alia, Delphi’s reaching a deal with its workers to reduce wages and other benefits and improve efficiency. Contrary to the apparent assumptions of the big money people who put these deals together, union people are not stupid. The Delphi deal, and the scores, if not hundreds, of millions that the hedgies think it will ultimately put in their pockets, won’t go through if the unions don’t agree to a deal. This has put the UAW and the other Delphi unions in the proverbial catbird seat. If Mr. Gettelfinger says “no deal,” there will be no deal and Cerberus and Appaloosa can watch the millions they think they will make on Delphi fly out the window. Understandably, the UAW will ask for everything it can get.

One can argue that the alternative is bankruptcy court ordered abrogation of existing contracts. This should give the UAW the motivation to bargain realistically with Delphi. But court ordered abrogation was always the alternative here, long before the hedge funds took an interest in Delphi. The downside hasn’t changed. The UAW’s leverage in its efforts to avoid that downside, and achieve a richer upside than was previously available, has been vastly increased.

No matter what feels about the relative merits of the arguments of Mr. Miller and Mr. Gettelfinger, one has to ask, from a pure poker playing perspective, why the hedge funds have dealt Mr. Gettelfinger a full house when he was holding a pair of deuces, and playing that hand quite well.

The Pontificator