ECONOMIC ANALYSIS: Bankruptcy of Delphi Corp. isn't all bad news for state

October 24, 2005

The long-anticipated bankruptcy filing of Delphi Corp. has sparked yet another discussion of the viability of manufacturing as a pillar of the Indiana economy. Such discussions, unfortunately, have become commonplace in many communities across the state in the last 10 years, in the wake of other troubling developments.

Most of us know the face of manufacturing has changed across the state, but to see the world's largest auto-parts manufacturer-once part of mighty General Motors Corp. itself-succumb to this fate is still shocking.

If the stroke of a bankruptcy judge's pen can undo the cumulative decisions of several generations of industry and union leaders who have secured a middle-class lifestyle for Delphi's 35,000 U.S. hourly workers, then no manufacturing job would seem safe.

That's certainly a valid conclusion to draw from the events of recent weeks. Yet my spin on the situation is a bit more optimistic. The Midwest in general, and Indiana in particular, remains a world-class producer of highly competitive products. And the fact that the harsh winds of that competition have reached the once-insulated walls of some of our oldest, largest manufacturing companies is in a sense tragic, but in another sense, inevitable.

Indeed, the body blow that promises so much pain for Delphi workers and retirees today may end up delivering positive results for the Indiana economy in the long run, for at least two reasons.

First, we have one of the jewels of the corporation, the 5,500-worker Delphi Electronics and Safety facility, within Kokomo's border. Does anyone really think a company required to provide nearly full pay to its furloughed workers, and which has been covering the losses of unprofitable plants with the profits of others, can devote the development resources needed to meet the competition? Whatever emerges from the bankruptcy proceedings, the new Delphi will be better positioned to feed that facility the capital it deserves.

Reorganization at Delphi also presents new opportunities in the vehicle-parts landscape that existing or future Indiana companies may take advantage of. The company's footprint is much larger in Michigan and Ohio than it is in our state, after all.

Even in the face of sky-high energy prices, the vehicle market remains in reasonably good shape, and the wheels are already turning among Delphi's competitors in anticipation of whatever chunks of business became available as a result of the shakeup.

These matters probably seem trifling for those who see Delphi's demise as the end of the road for domestic manufacturing.

There is a sense in which doomsayers are correct-the manufacturing world where job security, high pay and generous benefits are secured through big company/big union negotiations is under serious attack. All you have to do is look north to Michigan, which has lost jobs nearly every month in the last five years, to confirm that.

But manufacturing is more than that, particularly here in Indiana. And it's nowhere close to its death bed. Measured by output, the Indiana economy is more concentrated in manufacturing today than it was in 1998. And although down slightly from its peak last fall, manufacturing employment statewide today is up 2,400 workers from September's total two years ago.

Make no mistake: The impact of anything close to the worst-case scenario for Delphi will have a huge impact on many Indiana communities, particularly if their troubles hasten the budding crisis at General Motors.

But the manufacturing game is far from up, especially here in Indiana, and may produce some unexpected benefits for the state as well.

Barkey is an economist and director of economic and policy study at the College of Business, Ball State University. His column appears weekly. He can be reached by e-mail at pbarkey@ibj.com.
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