Experts Available to Comment on Delphi Bankruptcy

Release Date: October 12, 2005

BUFFALO, N.Y. -- Faculty experts from the University at Buffalo Law School and School of Management are available for commentary on Delphi's bankruptcy and its likely impact on Delphi workers, the Buffalo Niagara economy and the U.S. auto industry.

Below is a synopsis of their thoughts.

GM is on the hook for most of Delphi pension, says UB law professor

Delphi workers "may be better off if Delphi's pension plan goes under now rather later," according to UB Law School Professor James A. Wooten, an expert on pension-plan funding.

"When GM spun-off Delphi in 1999 they promised its union workers that if Delphi stopped paying pensions that GM would pay it. That guarantee lasts for two more years.

"The Delphi pension plan is $11 billion under-funded," Wooten explains. "The Pension Benefit Guaranty Corporation (PBGC) is on the hook for $4 billion of that; GM appears to be the hook for almost all of the rest."

According to Wooten, private pensions are in crisis in the U.S., which he says "is a predictable consequence that makes perfect sense in light of the regulatory environment and the economics of collective bargaining."

James A. Wooten, JD, Ph.D.
Professor of Law
University at Buffalo School of Law

Auto industry needs a new Henry Ford, says operations-management expert

Delphi's bankruptcy is likely to be a major turning point in the auto industry that will usher in a new deal between labor and management -- one that is necessary to make U.S. auto parts manufacturing globally competitive, according to Nallan Suresh, Ph.D., professor and chair of operations management and strategy in the UB School of Management.

"Some deep pay cuts and some painful adjustments will be necessary for workers in the short run," says Suresh. "But in the long term Delphi's bankruptcy could pave the way for taking a fresh look at the competitiveness of U.S. manufacturing. One might say that we need a new Henry Ford to come up with a totally innovative way to manufacture cost-effectively."

The problem, Suresh says, is that when Delphi was spun off from GM in 1999, it did not start out as a traditional new company, enjoying low cost structures, flexibility and an entrepreneurial culture. Instead, it simply inherited all the adverse cost structures (high pay rates, health-care and pension costs) and the inflexible working arrangements with the unions.

Nallan Suresh, Ph.D.
Professor and Chair, Operations Management and Strategy
University at Buffalo School of Management

With bankruptcy, Delphi has a chance, says bankruptcy expert

Chapter 11 bankruptcy will allow Delphi the leverage it needs to force compromises with the labor unions and other creditors, according to Samuel Tiras, Ph.D., assistant professor of accounting at the University at Buffalo School of Management.

"Delphi is strapped due to its current commitments, which include high wage costs to union workers," says Tiras, an expert on how accounting practices affect a firm's chances of bankruptcy survival. "Outside of bankruptcy, Delphi lacked the leverage it needed to force concessions. Now that Delphi has filed, the bankruptcy judge will evaluate the reasonableness of the company's proposed cuts in comparison to its competitors. Because Delphi's competitors are operating at a lower cost, the bankruptcy court will have no choice but to accept their proposal."

Tiras says that in the long run, Delphi will emerge a stronger, more efficient organization, but its workers will be forced to accept lower wages and lower benefits -- likely adversely affecting the entire Buffalo Niagara region.

Samuel L. Tiras, Ph.D.
Assistant Professor of Accounting and Law
University at Buffalo School of Management

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