Second shift will end at Chrysler's Sterling Heights plant

Eric Morath / The Detroit News

This afternoon is the last time workers will report to the second shift at Chrysler LLC's Sterling Heights Assembly Plant.

The shift will be eliminated after this evening as part of a plan announced in November to bring Chrysler's production in line with demand for its cars and trucks.

The loss of the shift impacts 1,146 workers, according to documents the automaker filed with the state. The exact number of employees who will be laid off is unclear because some workers accepted earlier retirement or buyout offers and are leaving the company.

Chrysler spokesman Ed Saenz confirmed the shift is ending today but he did not disclose the number of workers who will be laid off.

As part of the plan, shifts have already been eliminated at Chrysler Jefferson North Assembly Plant in Detroit and its Belvidere (Ill.) Assembly Plant. Shifts in Toledo and Brampton, Ontario, are also scheduled for termination.

Workers at the Sterling Heights plant build the Dodge Avenger and Chrysler Sebring midsize cars.

It's win-lose in Chrysler retiree deal

Pension boost comes as insurance cut

BY TIM HIGGINS • FREE PRESS BUSINESS WRITER • April 1, 2008

Chrysler LLC is ending company-sponsored group life insurance for 14,000 white-collar retirees and has promised to give them a one-time pension increase, a new letter to retirees says.

The changes are yet another in a long list of adjustments made by the Auburn Hills automaker since coming under the private control of Cerberus Capital Management last August.

The pension payment will come in the form of a one-time lump-sum payment directly to the retiree or be directed into a qualified retirement account, or the actuarial equivalent of the lump-sum payment can be paid out as a lifetime monthly pension benefit, the letter says.

The change is to retirees who were non-bargaining unit employees at Chrysler in professional, administrative, management and executive positions.

The pension payments will be determined by the number of years of credited service and the length of time since retirement, with the payments ranging from $1,000 to $4,000, according to Chrysler.

Chrysler says the pension increase is not related to the elimination of the life insurance benefit. Rather, it coincided with a payout to UAW retirees negotiated in last year's contract.

But the salaried-retiree payout could be used to buy discounted term-life insurance, Chrysler notes.

"The company has made arrangements with MetLife to provide current retirees with a one-time opportunity to purchase life insurance at special group rates through the MetLife Voluntary Retiree Life Insurance Plan," Thomas Hadrych, Chrysler vice president for compensation, benefits and corporate services, told retirees in a letter mailed Friday. "As a retiree, you may choose to use the one-time lump-sum pension payment for premiums in the new plan."

In an interview, Hadrych declined to say how much money the company would save from eliminating the life insurance benefit for retirees.

"As the benefit elements go away there obviously will be some savings," he said.

Hadrych said Chrysler reviewed what other Fortune 1,000 companies do and found that 60% do not offer retiree life insurance.

"This is in part a reaction to kind of our own internal situation, but it's also a reaction to what the competitive landscape across the full spectrum of companies in America offers," Hadrych said. "We think this was the right decision for the company both currently and in the long term."

Hadrych told retirees that the newly offered MetLife life insurance was separate and in addition to any other option life insurance that retirees were purchasing through the company. Those programs would remain unchanged, he noted.

This is not the first time Chrysler has adjusted the retiree life insurance benefit. In 2003, the Auburn Hills automaker, then under the control of DaimlerChrysler AG, reduced retirees' company life-insurance with most plans cut to $50,000.

Those who retired before to that change had the option to get a life insurance policy worth up to one time their salary, Hadrych said.

Cutting benefits to retirees is an easy cut for a company, Jim McTevia, managing member of McTevia & Associates. "Quite frankly those people are not involved in the ongoing success or failure of Chrysler," he said.

McTevia said the change probably provides a significant savings. "These are tough times to increase revenues. Where do you think their focus must be? It must be on cutting."

Chrysler buyout count short

UAW Vice President General Holiefield

declined to say whether Chrysler will

make its minimum goal of 8,500 workers.

Automaker had hoped 10,000 would exit

BY TIM HIGGINS • FREE PRESS BUSINESS WRITER •

Chrysler LLC, which is trying to reduce its hourly workforce, is unlikely to meet its goal of cutting 10,000 workers through its latest buyout and early retirement packages, a top UAW leader said Wednesday, further illustrating challenges Detroit automakers face convincing people to leave good-paying jobs during tough times.

I don't think we will get quite 10,000," UAW Vice President General Holiefield, who heads the union's Chrysler Department, told reporters while on a visit to the automaker's Conner Avenue Assembly Plant in Detroit. "With the economy the way it is, people are trying to hang on to what they have."

He declined to say whether the automaker will make its minimum goal of getting rid of 8,500 hourly workers. He said it will be clearer in a few weeks how well the program has worked.

David Cole, chairman of the Center for Automotive Research, agreed that workers contemplating buyout packages may have concerns about what they would do next.

"The environment today is such that a bird in the hand is worth more than two in the bush: I've got a job, even though I get the money, it may not be that easy to get a job that is close to what I have here," Cole said of people's thinking. "The other part of it is if I wait a little bit more, I may get more" as an incentive to leave.

Ford Motor Co. and General Motors Corp. also are trying to trim their hourly workforces. Ford hopes to reduce its workforce by at least 8,000 while GM has not said how many workers it hopes to cut.

Some Ford workers have told the Free Press they don't think the automaker will reach its buyout goals.

Holiefield said the union and Chrysler might have to talk about getting creative with the buyout packages to get more people to accept them. "So far I think they are doing pretty good," he said.

In November, Chrysler announced it wanted to eliminate as many as 8,500 to 10,000 hourly jobs. The eliminations come on top of a February 2007 plan to eliminate 11,000 hourly jobs over three years.

"We're working closely with the UAW to offer additional programs," Chrysler spokeswoman Michele Tinson said, noting that workers at the automaker's Mopar parts division have not yet been offered packages. She declined to talk about how many people had signed up for buyout packages.

Deadlines have passed for thousands of Chrysler workers who were offered packages, which included lump-sum payments of $70,000 or $100,000.

The plan offered in February also called for Chrysler's Newark, Del., assembly plant to be idled in 2009.

On Wednesday, Holiefield said he hopes the union will be able to convince Chrysler to keep the plant going. "As long as that plant is running, there is hope -- we never say die," he said.

Tinson said: "We're always willing to explore a business case, however at this point in time it still remains the plan on record to close the facility by 2009. There's no future product for that facility at this time."

Holiefield was at the Conner plant Wednesday to celebrate the 25,000th Dodge Viper to roll off the assembly line, which was presented to NASCAR driver Kurt Busch.

Chrysler CEO Bob Nardelli handed Busch the keys after greeting workers. He left without answering questions from reporters.

Before doing so, Nardelli said he would like a Viper. "I aspire -- someday -- to own a Viper. Now, I don't know who I have to see to try to get an order placed," he joked.

Chrysler may fall short of 10,000 buyouts-UAW

DETROIT (Reuters) - Chrysler LLC may fall short of its target of 10,000 unionized workers accepting buyouts or early retirement offers, a senior union official said on Wednesday.

"I don't think we will get quite 10,000," General Holifield, a United Auto Workers vice president, said at an event at Chrysler plant in Detroit that makes the Viper sports car. "With the economy the way it is, people are trying to hold on to what they have ... Jobs are not that easy to find."

Holifield said Chrysler, majority-owned by Cerberus Capital Management LP CBS.UL, might have to negotiate richer buyout offers if it fell short of its target. "We may have to enhance the packages some or get more creative in that area, but so far I think they are doing pretty good," he said.

Chrysler has set a target of cutting between 8,500 and 10,000 hourly jobs through this year as part of its turnaround effort.

Holiefield declined to say how many Chrysler workers could take buyouts as the struggling automaker attempts to cut costs and winnow slower-selling models from its lineup.

He said it would be several more weeks before the union had a more complete view of the number of buyouts. "I would think that maybe in another couple of weeks or so we may have a better barometer," he said.

Holifield, the UAW official charged with negotiating a four-year labor contract with Chrysler last year, said the union was also talking to the automaker about reversing a decision to close its Newark, Delaware, assembly plant.

Chrysler said last year it planned to close the facility, which makes the Dodge Durango and Chrysler Aspen sport utility vehicles.

"As long as that plant's running, there is hope. We never say die," Holiefield said.

(Reporting by David Bailey, Kevin Krolicki, Soyoung Kim; editing by Gerald E. McCormick/Jeffrey Benkoe)

UAW local strikes American Axle

Talks break down over proposed concessions

BY JEWEL GOPWANI • FREE PRESS BUSINESS WRITER •

The UAW sent most of its members at American Axle & Manufacturing Inc. on strike early today, protesting the company's proposals on wage and benefit concessions.

People filtered out of the union hall for UAW Local 235, on Holbrook Street in Hamtramck, with picket signs. Some were moving toward the nearby American Axle complex.

“The UAW has a proven record of working with companies to improve their competitive position and secure jobs,” said UAW President Ron Gettelfinger in a statement. “But cooperation does not mean capitulation. Our members cannot be expected to make the extreme sacrifices American Axle is asking for with nothing in return.”

The strike affects about 3,600 workers in American Axle plants in Michigan and New York. The UAW represents about 1,000 more workers under different contracts at the company.

In a letter to members handed out at meetings Monday night, the union said the company had made unreasonable proposals on wages and proposed increasing co-pays for prescription drugs, eliminating vision coverage and freezing pension benefits, replacing them with a 401(k) plan.

The union said it requested information from the company on the assumptions used to reach these demands, but the supplier has so far refused. The union is now accusing American Axle of committing unfair labor practices.

"We will have no alternative but to strike," the letter said. American Axle's contract expired at 11:59 p.m. Monday.

In a statement, the UAW said the company demanded wage reductions of up to $14 an hour.

In its own statement, the company said its primary objective "is to achieve a market-competitive labor cost structure in the United States," similar to agreements other companies had reached with the UAW.

Without such changes, the company said, its ability to compete for future business or retain existing business at these locations is in immediate jeopardy.

This is the third strike against an auto company in six months and the second strike against Detroit-based American Axle in four years.

Earlier Monday evening, the two sides were still far apart on the fundamental issue of wages, which the company has been seeking to lower for more than 3,000 workers, said people familiar with the negotiations.

Another sticking point in the talks was the company's proposal for plant shutdowns, said Wendy Thompson, former president of UAW Local 235, who had been briefed on the talks.

Management has said it wants to lower the overall compensation from $65 an hour, including wages and benefits, to $27.

That would take wages from about $27 an hour to more like $14 to $18 an hour -- a level closer to what Delphi Corp. pays, or the second-tier wage negotiated at the Detroit Three last summer.

"We continue to believe the new contract has the potential to take down AXL's labor cost by $20 an hour and, with attrition programs, yield potential savings of $200 million annually," said Lehman Brothers auto analyst Brian Johnson.

Jewel Gopwani/DFP

Otis Evans, 37, walks the picketline with his fellow American Axle workers early this morning after the UAW called a strike against the Detroit-based axle maker. Evans, who is a pipefitter and has worked for American Axle for 11 years, said he is picketing for a fair contract. Among several issues that led talks to break down were the company's demand for wage cuts.

Workers react to the strike

As a steady snow fell, dozens of workers poured out of the union hall on Holbrook Avenue.

Most workers either declined to comment or declined to give their names while expressing their unhappiness with the company’s demands. Others simply pointed to the wording on the signs they carried that said “unfair labor practices.”

Norm Beauchesne has been an electrician at American Axle for 13 years.

He said the company’s call for cuts was too drastic.

“Do you want to take a 66% cut in what you make? The obvious answer is no,” he said. “We’re out here trying to protect our livelihoods.”

Cherisse Ellington, a maintenance worker at the plant, echoed Beauchesne’s sentiments.

“They wanted to cut our wages in half. I don’t feel that’s fair,” she said.

One striking worker said economic factors make the company’s demands unreasonable.

“Look at the price of gas now. Who can afford a cut in pay?” said Henry Nelson, 56, of Southfield.

Nelson has worked for American Axle for 36 years.

Chrysler may lay off 200 workers

UAW salaried staffers targeted

BY TIM HIGGINS |

FREE PRESS BUSINESS WRITER

Chrysler LLC, facing a slowing U.S. auto market, plans to indefinitely lay off 200 or more salaried union members Friday, the Free Press has learned from internal UAW memos and people familiar with the situation.

The Auburn Hills automaker, which is expected to lose about $1.6 billion this year, has already announced plans to eliminate as many as 25,000 jobs and presumably these cuts would be part of that total.Last summer 7,100 workers were granted buyout packages to leave the company voluntarily and another round of buyout packages were offered to white-collar workers to leave the company in two waves -- first at the end of November followed by another round at the end of this month. The effort is believed to be aimed at reducing the white collar workforce by 1,000.

An automaker is traditionally allowed to lay off union members because of volume-related issues and the union workers continue to receive a percentage of their pay while not working.

Chrysler workers likely affected by the layoffs told the Free Press that they had been offered buyout packages by Chrysler but that the offers had been rescinded.

Salaried union designers were warned of the layoffs in memorandums sent by UAW Local 412 leaders and obtained by the Free Press.

Nervous workers have begun referring to the end of the week as Black Friday.

"The company's initial plan is for the layoffs to occur before the holidays," UAW Local 412 Unit 1 Chairman Rich Harter warned his members in a recent letter. "International is attempting to delay any cuts until after the new year and continue discussions in an attempt to stop them altogether."

He said one estimate was that the layoffs could affect more than 250 people. Another person familiar with the plan pegged the number around 200.

Michael Norscia, chairman of Local 412's Unit 80, delivered a similar warning to his members via an e-mail obtained by the Free Press.

"I have just been informed by Chrysler Labor Relations Mike Ellison that our Unit 80 will be effected by a volume-related layoff," Norscia said. "He did not give me any headcount numbers but will give them to us as soon as possible."

A Chrysler spokesman declined comment.

Chrysler's plan left UAW leaders unhappy and they apparently argued to the company that contract designers should be cut instead.

"It was established we currently have a sufficient number of direct designers sitting idle or with light workloads that would allow us to immediately shift the work assignments of contract employees performing the exact work assignments to direct employees, or hire them per the intent of the 'Salary Bargaining Unit New Hire Plan' letter," Harter told members. "We identified a conservative 52 such contract employees. Regardless of these facts, Labor Relations and Management made it very clear they are going to pursue their previous agenda of eliminating union designer numbers within Chrysler."

Local 412 leaders argued that the national labor agreement, which was recently ratified, protects workers from such layoffs in this case, but Chrysler officials disagreed, citing an unpublished side-letter to the 2003 contract, according to a letter from UAW Local 412 leadership to UAW International leaders detailing the situation. The letter was obtained by the Free Press.

"The company is moving very quickly on many different fronts without any regard to the new contractual agreements," the Local 412 letter warned.

UAW, Chrysler reach tentative agreement

Daniel Mears / The Detroit News

Workers file out of the employee entrance Wednesday at the Chrysler Trenton Engine Plant. Later Wednesday, the United Auto Workers announced a tentative deal with Chrysler LLC, ending the brief strike.

Bryce G. Hoffman / The Detroit News

The United Auto Workers has announced a tentative agreement with Chrysler LLC, ending a brief strike against the Auburn Hills automaker.

Terms of the new contract, which still must be ratified by rank-and-file union members, were not immediately available. The automaker said the deal includes a memorandum of understanding to transfer responsibility for retiree health care to a union-managed trust fund.

The settlement was announced by the union just before 5:30 p.m., ending a strike that began at 11 a.m. after a UAW-imposed deadline passed without a deal.

"This agreement was made possible because UAW workers made it clear to Chrysler that we needed an agreement that rewards the contributions they have made to the success of this company," said UAW President Ron Gettelfinger.

Chrysler President Tom LaSorda confirmed the deal shortly after the UAW announcement.

"The national agreement is consistent with the economic pattern, and balances the needs of our employees and company by providing a framework to improve our long-term manufacturing competitiveness," he said.

If ratified and approved by the courts and the Securities and Exchange Commission, the deal will cover some 45,000 UAW members employed by Chrysler.

"I think that's excellent," said Deanna Rhineheart, 38, who works in shipping and receiving at the Chrysler headquarters in Auburn Hills.

"We all need our jobs, whether it's UAW and management," she offered, guessing as to why the deal was reached so quickly.

"It's a beautiful thing," said the mother of two from Farmington Hills.

General Holiefield, who heads the UAW's national Chrysler division, said the union was able to achieve its most important goals.

"Once again, teamwork in the leadership and solidarity in the ranks has produced an agreement that protects jobs for our communities and also protects wages, pensions, and health care for our active and retired members," he said.

Workers will be notified by Chrysler to report for duty at their next scheduled shift, the UAW said.

UAW steps up talks at Chrysler

UAW steps up talks at Chrysler

UAW President Ron Gettelfinger

Negotiations for Ford brake to a virtual stop

October 6, 2007

BY KATIE MERX

FREE PRESS BUSINESS WRITER

With momentum growing toward ratification of the UAW's proposed contract with General Motors Corp., the union is ramping up negotiations with Chrysler LLC.

Talks at the automaker's Auburn Hills headquarters are expected to intensify over the weekend, while those at Ford Motor Co. have virtually stopped, people familiar with the negotiations said Friday.Harley Shaiken, a professor at the University of California at Berkeley who specializes in labor issues, said Ford and Chrysler will want to make at least minor changes to the pattern set in GM's deal.

"I suspect the UAW went to Chrysler, because it seemed Chrysler would be the best place to adapt the pattern first," he said.

The union slowed talks with those two automakers when it named GM its strike target Sept. 13, one day before the previous 4-year contract was to expire. After a two-day strike against GM plants nationwide, the union announced a tentative agreement with GM on Sept. 26.

As of Friday evening, at least 14 UAW locals had approved the agreement and three had rejected it.

For ratification, the union needs yes votes from a majority of its more than 73,000 members who work for GM.

Analysts and workers have called the proposed contract historic for its inclusion of a two-tier wage structure and an agreement to transfer responsibility for $50 billion in future retiree health costs from GM to a trust in exchange for a $29.9-billion investment in the trust and guarantees of future U.S. manufacturing work.

Key to gaining worker approval has been the inclusion of an extensive list of product plans and prospects for many of GM's U.S. production facilities.

Approving the agreement, by various margins, were union locals in Pontiac; Flint; Lansing; Grand Rapids; Grand Blanc; Ypsilanti; Toledo; Fairfax, Kan.; Janesville, Wis.; Spring Hill, Tenn.; Ft. Wayne, Ind., and Oklahoma City. (Some cities have more than one local.) Ft. Wayne approved the agreement by just 50.7%.

At the Romulus engine plant, 50.2% of voters opposed the deal Friday. Larry Long, president of Local 163 there, said the margin against was five votes.

UAW members in Wentzville, Mo., also rejected the agreement Friday, union members said. The UAW local representing workers at a New York plant scheduled to close in 2008 rejected the agreement earlier this week.

Chrysler next

In turning to Chrysler for the next round of talks, UAW President Ron Gettelfinger is gambling he can win a quick agreement and then return to Ford with more leverage, Dan Luria, an analyst at the Michigan Manufacturing Technology Center in Plymouth, told Bloomberg News.

"The UAW has got to go to Chrysler eventually, so if they go there now and things turn out to be relatively easy, then Ford will be in a bad position if they don't go along," he said.

Bloomberg News and WDIV-TV (Channel 4) reported the news first.

UAW ponders health care givebacks

Deal it had rejected may be Chrysler's best contract offer

David Barkholz
Automotive News
May 21, 2007 - 1:00 amDETROIT -- Last year the UAW refused to grant the Chrysler group the same retiree health care concessions that it had given General Motors and Ford Motor Co.

Now those concessions are just a starting point. Negotiations are under way on a new health care deal, now that Cerberus Capital Management LP is becoming Chrysler's new owner.

A proposal similar to the Ford and GM deals is on the table, as are a "number of alternatives," said Chrysler spokesman David Elshoff. He declined to elaborate.

Probably the least painful deal the UAW can hope for is the one it didn't give Chrysler last year. That plan saves GM about $1 billion annually and Ford somewhat less.

The deal required GM and Ford retirees to accept higher co-pays and deductibles, while active UAW employees gave up $1 an hour in raises.

A similar deal would save Chrysler $340 million annually, says Citigroup Inc. auto analyst John Lawson, who is based in London. Lawson says Chrysler's $18 billion retiree health care liability would be reduced by $4 billion.

Cerberus is assuming that liability as part of the purchase of Chrysler. Cerberus CEO Stephen Feinberg stayed in Detroit last week after the Chrysler announcement to meet with UAW leadership and commit to honoring the current contract.

But that contract expires in just four months, along with the UAW's master agreements with GM and Ford.

Last week, UAW President Ron Gettelfinger said health care talks are ongoing. A UAW spokesman declined to elaborate.

Even if the UAW is willing to accept this deal, it's unclear whether Chrysler would be satisfied with it. A more radical proposal would require the UAW to accept Chrysler's health care liabilities in return for a large lump-sum payment.

The union would administer its members' health benefits through a Voluntary Employees' Benefits Association. Last year Goodyear Tire & Rubber Co. negotiated a similar deal with the United Steelworkers - an arrangement that transferred a $1 billion retiree health care liability from the tire company to the steelworkers.

But the UAW faces a dilemma: If it grants such a concession to Chrysler, then Ford and GM will want the same deal. It would be a huge risk for the UAW, but some analysts think that cautious cost cutting no longer is enough to save the Detroit 3.

"These can't be incremental changes," says Dave Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "They have to be transformational."

Job cuts won't fix Chrysler

Experts say management decisions are just as critical

May 21, 2007

BY JOE GUY COLLIER

FREE PRESS BUSINESS WRITER

UAW President Ron Gettelfinger has said the union is not afraid to strike if bargaining goes poorly.

RELATED STORIES

Complete coverage of the Chrysler deal

ADDITIONAL INFORMATION

Automakers' 2006 North America results

North America has been the leading problem area for Detroit automakers, resulting in major losses while providing a highly profitable market for Japanese competitors.

General Motors Corp.: Reported a pretax loss of $4.6 billion with an adjusted loss of $779 million as the company paid for an attrition program taken by 34,000 hourly workers.

Ford Motor Co.: Lost $16 billion pretax, which included $10 billion in one-time costs, mostly associated with the company's restructuring and job cuts.

Chrysler Group: Lost $680 million as U.S. sales dropped 7% for the year.

Toyota Motor Corp.: Reported an operating profit of $3.8 billion in North America as part of the company's record net income of $14 billion.

Honda Motor Co.: Net income company-wide dropped slightly in 2006, but North American operating profits rose 29% to $3.9 billion.

Nissan Motor Co.: Made $2.4 billion in operating profits in North America in what was considered a difficult year for Nissan.

Chrysler's new owners, Cerberus Capital Management LP, will need concessions from the UAW to trim costs and become competitive with Japanese automakers, industry experts say, but labor cuts alone will not turn Chrysler into a success.

Chrysler estimates that Japanese automakers, such as Toyota Motor Corp., have a $30-an-hour labor cost advantage, counting benefits and special provisions, and the gap could grow to $45 an hour by 2009 without changes to the UAW contract. Chrysler, Ford and GM begin contract talks this summer with the UAW, presenting an opportunity to rework labor costs for all three automakers.

But Cerberus could be sorely disappointed if it counts on only UAW concessions, said Laurie Harbour-Felax, president of the Harbour-Felax Group.

Management decisions are equally to blame for Chrysler's problems, said Harbour-Felax, whose company released a report last fall on the profit gap between domestic and Japanese automakers.

Chrysler does pay more in labor costs than Toyota, but Chrysler, like General Motors Corp. and Ford Motor Co., also has failed to make enough vehicles that U.S. consumers want, leading to a decline in market share, revenues and profits, she said.

"What happens in negotiations is critical," Harbour-Felax said. "I think the union understands 100% what they need to do to be competitive. ... But at the same time, they're going to look across the table at management and say, 'What are you doing for us?' "

The disparity between the U.S.-based and Japan-based automakers was highlighted this year as the companies released full-year financial results.

GM, Ford and Chrysler lost money in North America, the chief drag on operations. Toyota, Nissan Motor Co. and Honda Motor Co. made billions of dollars in North America, helping bring up overall results.

Labor costs are a major reason for the financial difficulties at GM, Ford and Chrysler, said Joe Phillippi, an auto analyst and principal with AutoTrends Consulting in Short Hills, N.J.

The domestic and foreign automakers pay similar wages at their North American plants, Phillippi said. The difference comes in the benefits, which cost Detroit automakers twice as much as Toyota, he said. Domestic automakers also have more retirees to support.

Chrysler will need UAW members to pay more of their health care costs to save money and be competitive with Toyota, Phillippi said.

Cerberus could have more leverage in winning concessions, he said. Private equity firms are known for taking brazen moves to cut costs.

"They don't have to answer to shareholders," Phillippi said. "They are the shareholders. If it comes down to a point where they need to play serious hardball, they can."

Cerberus has not indicated that it will take a hard-line approach with the UAW. It says it will carry out Chrysler's existing restructuring plan, which calls for cutting 13,000 jobs over three years.

Given the price paid by Cerberus for Chrysler, the firm may not need to take aggressive measures to get a payback, according to an analysis by Lehman Brothers.

Cerberus is paying $7.4 billion for an 80% stake in Chrysler. Chrysler Financial, the financing unit, is worth about $5.9 billion, leaving the purchase price for the core auto operations at $1.5 billion, Lehman Brothers estimates.

Cerberus also owns 51% of GMAC LLC, the financing arm of GM. The private equity firm could combine Chrysler Financial and GMAC, wringing enough profits out of that combination to justify the deal.

Harbour-Felax said she's not sure Cerberus would be able to win major concessions from the UAW. While private equity firms have a reputation for cost cutting, the UAW is a tough negotiator that works out near-identical contracts with GM, Ford and Chrysler.

UAW President Ron Gettelfinger has said the union would strike if collective bargaining is not treated as a two-way street.

Cerberus and the new Chrysler would be well-served to focus on areas outside of the UAW contract to turn things around, Harbour-Felax said. Her company released a study last fall that showed a $2,400 profit gap per vehicle between the domestic and Japanese automakers.

Labor costs accounted for about half of the difference -- $1,080 to $1,335 of the gap. Health care was the single biggest category at about $1,000, or $2 billion a year for Chrysler over Toyota's health care costs.

But the U.S. automakers also have hurt profits by making vehicles even when demand falls and by not having as many common platforms and parts, missing opportunities for efficiencies in design and production, the report found.

The UAW contract is an issue, Harbour-Felax said, but "there's a lot of other stuff that Chrysler and Cerberus can do and can control to save money and start closing the gap with the Japanese. ... If there was a miracle of miracles and we solved the health care problem, the Big Three would still lose money to the Japanese."

Daimler, Cerberus to shore up Chrysler pension, UAW says

Reuters |
May 17, 2007 - 10:00 am

DETROIT (Reuters) -- The United Auto Workers union said it received a guarantee that the pension fund for Chrysler workers would get an additional $1.2 billion as a result of the pending sale of the struggling automaker. UAW President Ron Gettelfinger, a member of the DaimlerChrysler AG supervisory board who has endorsed the Chrysler deal, said both the future Daimler AG, and Chrysler's new owner, Cerberus Capital Management LP, would contribute to the pension plan. "Cerberus has committed to contributing an additional $200 million to the pension fund and Daimler is providing a conditional guarantee of $1 billion for up to five years," Gettelfinger said. The comments came in an online discussion on Wednesday, May 16, between union members, Gettelfinger and UAW Vice President General Holiefield, who will take charge of negotiating a new contract with Chrysler to replace a four-year deal on wages and benefits expiring in September. The UAW officials also said Cerberus had provided a written commitment that there were "no new plans" to cut jobs at Chrysler in addition to the 13,000 jobs already being eliminated as part of a turnaround effort. "Excluding abnormal market conditions ... there are no additional job cuts in connection with the transaction," the union said, quoting a letter from Chrysler. Chrysler's roughly $17 billion in health care liabilities and the pension burden for its unionized work force have been a major uncertainty as the No. 4 U.S. automaker heads into contract talks under private ownership. The UAW comments marked the first time terms for any additional Chrysler pension funding had been detailed since the sale of an 80 percent stake in the company to the private equity firm was announced on Monday, May 14. In a conference call with analysts and reporters to discuss the sale, DaimlerChrysler CEO Dieter Zetsche declined to comment when asked whether Daimler and Cerberus had committed additional pension funding as part of the $7.4 billion sale of Chrysler. "Those discussions ... are confidential discussions without any outcome," Zetsche said then. Representatives for the Chrysler group and Cerberus had no comment on Gettelfinger's remarks on Wednesday. A DaimlerChrysler spokesman confirmed the German automaker had extended the pension guarantee, but said he could not provide further detail on the terms. Gettelfinger's comments on the new pension funding came after he surprised some industry analysts with his immediate endorsement of the Cerberus deal this week, given his earlier hostility toward a private equity owner for Chrysler. In his remarks to union members on Wednesday, Gettelfinger pointed to areas where the UAW, a union with strong ties to the Democratic Party, had common cause with Cerberus, whose chairman is former Bush administration Treasury Secretary John Snow. Gettelfinger noted that a Cerberus-owned company NewPage had filed a trade complaint in conjunction with its union, the United Steelworkers, against what they claimed were subsidized paper imports from China, Indonesia and South Korea. Gettelfinger called the lawsuit and an initial U.S. Commerce Department finding for NewPage "a tremendous accomplishment by Cerberus and the (union)." Taking a question from a concerned union member outside Detroit, Gettelfinger also said the UAW recognized Chrysler would have to compete on quality and customer service. He added: "Cerberus management has assured us that they feel the same way." Some analysts have suggested that Chrysler under Cerberus could consider shifting health care liabilities for retired workers to a trust aligned with the UAW and separate from the company in exchange for a one-time payment. That would mark a major shift for a Detroit automaker and follow the outline of a strike settlement reached earlier this year between Goodyear Tire & Rubber Co. and its major union, the United Steelworkers. On Wednesday, a UAW member called on Gettelfinger to consider having the union take a role in running the Chrysler pension. Gettelfinger avoided commenting on the specific suggestion. "The UAW has and will continue to negotiate responsible agreements that include pension plans," he added.