The announcement yesterday that General Motors and the United Autoworkers of America have reached a tentative deal to lower the company’s health care costs is a welcome development for both the company and the union. The car manufacturer’s health care costs were out of control and threatened its long-term viability. The union recognized that it was better to make some adjustments to health coverage rather than watch the company’s doors close.

In press accounts, the chief executive of GM, Richard Waggoner, praised the manner in which each side handled themselves. “These negotiations were done in a positive, co-operative, problem-solving spirit,” Waggoner said. One can only hope that this same sort of spirit infects the union when it enters into its next round of negotiations, this time with Delphi, an auto industry company that recently filed for Chapter 11 bankruptcy. Statements from union leaders suggest that the union still has a way to go before it has fully reconciled itself with economic reality.

The chief executive of Delphi, Robert S. Miller Jr., has given union leaders a choice. They can work with the company to help reduce labor costs, wages, and benefits. In return, while some jobs would be lost and wages overall would decline, the company would probably be able to emerge from bankruptcy, continue operations at many plants, and pay out pensions that were promised to autoworkers years ago. Or the union can take a hard line against cuts and go on strike. This would threaten the company’s future and almost guarantee that Delphi would dump its pension obligations onto the federal government, meaning that rank and file workers will suffer pension losses.

But continuing with the current business model is not an option. Delphi’s labor obligations are completely unsustainable. With wages, benefits, and pensions, unionized Delphi workers make up to $65 an hour – for a job that requires no post-secondary education and few specialized skills. These benefits include health care with few co-pays or deductibles and nearly full salary guarantees, even when plants are closed. Delphi’s chief has estimated that those wages and benefits will need to drop to somewhere in the $20-$25 range – a deep cut, but still a reasonable salary well above the minimum wage.

So far, union leaders have not seemed interested in solving Delphi’s long-term problems. When Mr. Miller mentioned in several interviews that a strike would cripple the company and be unwise, the union’s vice president, Richard Shoemaker, immediately said that it would be “presumptuous” to assume that there would not be a strike.

The union has tried to shift attention to the red herring of executive compensation. Just prior to the bankruptcy, the company made a public relations blunder by boosting salaries for several executives. But executive compensation is not the reason for the Delphi’s woes. An executive earning over $1 million a year means very little to the company’s bottom line. Delphi has a debt of over $6 billion and pension liabilities of $14.5 billion. Even if executive compensation were cut by half or eliminated entirely, it would not have made even the smallest difference in the company’s overall financial outlook.

To prove this point, on Monday Mr. Miller agreed to give up his $1.5 million salary and work for only a buck. Several other top executives agreed to substantial pay cuts, too. Even with these compensation cuts the company is still in a bad financial position.

Labor, pension, and health care costs matter far more. Union leadership must face the truth that these contracts are at least in part to blame for Delphi’s current woes. The current wage structure was forged in a different era, long before Japanese automakers and outsourcing entered the picture. When American car parts and American cars were only being made in American cities, paying out generous wages and benefits made more sense. But foreign-made cars now dominate the market and globalization has allowed companies to cut labor costs significantly. It might be a dreary situation for unions, but it’s also reality.

Yet they don’t seem to get it. For example, at the Change to Win Convention in St. Louis which brought together dissident unions that recently disaffiliated from the AFL-CIO, labor leaders launched a vicious attack against Wal-Mart and openly asked on several occasions why the retail giant can’t be more “like GM and Ford.” It’s no wonder that companies like Wal-Mart have no interest in working with unions: What executive in his right mind would want his company to become the next GM or Ford, given the current state of those companies? And how many employees really want to join a union if it means that in the long run the company will go belly-up, leaving their town in a shambles and their pensions worthless?

There is a solid middle ground between paying the minimum wage with no health care or pensions and paying employees so much that the company goes broke. GM and its union found that middle ground. Workers at Delphi will hopefully recognize that Mr. Miller is making a good faith effort to find a middle ground, too.

Immediately after yesterday’s deal, there was some grumbling on labor websites about the contract with GM. But these naysayers must realize that cooperating with a company is preferable to watching an entire industry disappear, which is the alternative.

Mr. O’Keefe is a researcher at the American Enterprise Institute.