This is getting ugly here. Delphi, the former parts arm for General Motors which was spun off into it's own publically traded company, has filed for Chapter 11 bankruptcy protection. This is going to have a large impact on the economy here. First, there are hundreds of smaller parts manufacturers that provide parts for Delphi. Many of them have not been paid in months.
Delphi has long had troubles well before it become as separate company. It had large inflexible unionized workforce, excessively generous benefits, and long-term contracts that handcuffed the company. Add to this rising steel and fuel costs, and a teetering auto industry, and it was the tipping point. Delphi tried to extract consessions from the UAW over retiree benefits, but when the UAW balked, they carried through on their threat and went into bankruptcy.
What is happening at Delphi will be happening at GM soon. The conventional wisdom is that $1,500 of the cost of every GM vehicle goes to covering their health care costs. The problem is that unionized employees and retirees have no co-pay to speak of (unionized employees and retirees pay 7% of their costs, while management pays 27%). With more and more retirees living longer and longer, it is no wonder that the big three are bleeding red ink.
A lot of this was inevitable, and has been brewing for 30 years. Excessively generous labour agreements from the 60's and 70's, when the big three had 90% market share have finally started to impact the company. GM's debt is BB- (anything BBB and above is 'investment grade' while anything below is 'junk'), while Toyota's debt is rated AAA. This is a testament to years of mismanagement.
There is going to be a brawl with the UAW over this, and the other auto makers and suppliers are going to follow suit, as they are in survival mode.