United Auto Workers Support Chrysler Sale

by Frank Langfitt

Morning Edition, May 15, 2007 · Private equity firms and unions are usually at odds. While private equity is generally looking to cut costs by cutting jobs and benefits, unions are busy trying to protect them.

So, the United Auto Workers' endorsement of the sale of Chrysler to private equity firm Cerberus has come as a surprise to many.

Until recently, UAW head Ron Gettelfinger was no fan of private equity firms. Earlier this year, he warned that if such a firm took over Chrysler it would "strip and flip" the automaker, selling off its assets and destroy the company.

But by Monday, when the Chrysler-Cerberus deal was announced, Gettelfinger was striking a tone of acceptance.

"You're dealt a hand," he said at a news conference. "We maintain … today that we would like the Chrysler group to stay under the umbrella of Chrysler, but that's not going to happen."

Instead, Gettlelfinger said he received commitments from Cerberus and from officials at Daimler-Benz, but he wouldn't elaborate.

"Many things have already been put out in writing within the corporation in different forms," Gettelfinger said.

"Are there going to be bumps in the road? Absolutely," he added.

Chrysler CEO Tom Lasorda said the company and Cerberus have no major plans to cut jobs, but some in the labor community seemed less than convinced.

Buzz Hargrove runs the Canadian Auto Workers, which represents 10,000 workers at Chrysler factories. He said he has yet to speak with Cerberus representatives and remains skeptical.

"Usually the biggest way to cut costs is to cut people and we're going to fight like hell against that," Hargrove said.

But Cerberus may be looking for another way to control costs. As part of the deal, the equity firm agreed to take on Chrysler's more than $18 billion in pension and health care obligations.

That's a staggering amount of money — far more, in fact, than the entire company is worth.

It also puts Chrysler at a huge disadvantage against foreign competitors, such as Toyota.

Sean McAlinden, is an auto analyst in Ann Arbor, MI. He thinks Cerberus may ask the union to cut retiree benefits.

"It's a deal that has to be done to make the company viable, because I really don't see how Cerberus could turn this thing over and make a nice return on it," McAlinden said. "Why would you want to buy a share in a company that — when you consider these liabilities — has no net value?"

And what could the union get in return?

First, it might get control of the pension fund, which would move outside the company and be protected if Chrysler ever went belly up. Second, Cerberus has agreed to invest $5 billion dollars in the company that could help save jobs — the union's top priority.

"It's possible in this deal that every Chrysler plant gets new investment," McAlinden said.

Until details of the plan are heard from the UAW and Cerberus, it's hard to know what kind of arrangement the two might work out.

The union, however, begins contract negotiations this summer with all three Detroit automakers, so it has to be careful what kind of a deal it strikes with Chrysler. Ford and General Motors are likely to want the same thing.