Friday, May 18, 2007

New Chrysler; Old Union

More From Jerry Flint

Jerry Flint, 05.17.07, 2:35 PM ETThe other evening I was watching the ABC Evening News. The purchase of Chrysler was the big story, and the network had some professor explaining that the union was in a hole, now that the company was going private. That is because the new owners could say something like (my interpretation of his words): "Give it all up, you UAW pigs, or we'll go bankrupt and then you'll all be out of work."

On the same day, The New York Times, on Page 1, saw the union's position on Chrysler as influencing its actions with General Motors (nyse: GM - news - people ) and Ford Motor (nyse: F - news - people ). The newspaper said, "The most obvious way" for the new owners to make money on their investment is "by reducing the benefits that workers hold sacred."

The conventional wisdom is that a private company would be tougher for the auto union to deal with because the owners could be uncompromising. This is nonsense. It does not make much difference if the company is public, private or owned by the new president of France.

I have had a bit of experience here: I was once the national labor writer of The New York Times and personally covered the negotiations between the United Auto Workers union and the automakers for 15 years. Let us not forget that the Chrysler pension fund is not in the red but over-funded.

Public or private does not make any difference.

For starters, the current union contract runs into the fall, and Chrysler, no matter who owns it, must obey this agreement. The new private company can no more rush into bankruptcy as a means to pressure the union than the old public Chrysler could. That is because people are unlikely to buy cars and trucks from a bankrupt carmaker. If the company were to file for Chapter 11, the private owners, Cerberus Capital Management, would lose the $7.4 billion they paid. They might lose control of Chrysler as well.

In my memory, when Ford was private (until the 1950s), it was more generous with the union that General Motors or Chrysler were. In fact, the first contract Ford signed with the union, back in 1939, I think, made concessions that the young UAW never expected--like the check-off, meaning the company collects the union dues from each worker's paycheck.

Chrysler is losing money, but that is because of poor management decisions, not union wages and benefits. The three-quarter billion-dollar operating loss in the first quarter should have been a profit but was not because Chrysler is knocking thousands of dollars off the price of its new cars and trucks. Managers ordered overproduction a year ago and now have to give vehicles away to lower inventories. The situation is so bad that dealers still have thousands of leftover 2006 models on the lots.

Talks for a new labor contract begin in the summer. The union traditionally picks one "target" to negotiate with, and then once it has a new contract, it passes the same terms on to the two other Detroit companies. You can be sure that this time Chrysler will not be the target. My bet is that GM will be first this time, and then Ford and Chrysler will sign the contract, with a few minor differences. If the union were to ask Chrysler workers to take less, they would vote it down.

Yes, there will be concessions in the new contract, even on health care. How large and how many concessions are the question. It is good to remember that when Chrysler was in real danger of going under, in the Lee Iacocca days in the '80s, the union would not give wage concessions until Congress said the company would not get loan guarantees without union compromises. The union conceded.

The new Cerberus owners know something about UAW bargaining. Their investments in the auto industry goes way beyond Chrysler: They have already bought half of GMAC, GM's finance company, and now will own Chrysler Financial. They are also buying bankrupt Tower Automotive, a big car parts maker that is in bankruptcy. Cerberus was also trying to invest in bankrupt Delphi (nyse: DPH - news - people ), the largest car parts maker in the world, but appears to be backing out of the deal because of union resistance to concessions. In addition, Cerberus has hired several talented auto industry veterans, including Wolfgang Bernhard, who used to be No. 2 at Chrysler.

There are two possible plus factors in dealing with the union. The UAW never gave Chrysler the same health care concessions it gave to GM and Ford, which was not fair. (At the time of that deal, Chrysler was in better shape than its two rivals were.) The union could now offer Chrysler the same accommodation as a conciliatory gesture.

Another factor is that the Canadian Auto Workers (CAW), a different union (split off from the UAW), is willing to bend over backward to save jobs in Canada. In February, Chrysler asked its workers at its Ontario plant (three shifts a day making the Chrysler 300 and other cars) to give up extra pay in exchange for a promise of more work.

At first, the Canadian union voted down the proposal. Then the CAW leadership came in and told the workers that their jobs were in jeopardy. The workers voted again and gave up the extra pay. The UAW in the U.S. should know it must make concessions or some Chrysler jobs could go to Canada.

The new Chrysler will get concessions from the UAW, but they will be the same basic concessions that GM and Ford get. And in the end, the new owners will not turn around Chrysler by getting labor concessions--yes, they need them, too--but by figuring out how to sell more car and trucks that consumers really want and getting more dollars for each sale.

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