Chrysler and the Future of American Auto Workers - East Valley Tribune: Business

Chrysler and the Future of American Auto Workers

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Posted: Monday, July 9, 2007 3:24 pm | Updated: 7:57 pm, Fri Oct 7, 2011.

Will private-equity ownership of Chrysler spur a turnaround at the trailing Detroit Three automaker? Or will Cerberus end up further slashing Chrysler’s workforce or restructuring the company into some unrecognizable form?

Those are the existential questions plaguing DaimlerChrysler’s American workers as the expiration of their collective bargaining agreement and the closing of the acquisition converge this fall.

But it also spurs a larger question: What’s the future for American-based auto workers as a whole?

The Detroit Three can see no end to the financial woes brought on by their pension and healthcare liabilities; at the same time, looming fuel-efficiency mandates will require major investments at a time when capital is prohibitively expensive given their low bond ratings. Foreign companies making cars in the United States are generally in much better shape, but they face potential friction with workers as competition pushes them to cut labor costs.

For now, Cerberus has told Chrysler it plans no layoffs beyond the 13,000 announced previous to the deal. But for the long term, many industry analysts aren’t buying it.

“The assertion that the Chrysler workforce will not be affected by this is not to be believed,” says Gerald Meyers, a lecturer in the business school at the University of Michigan in Ann Arbor.

Job Cuts May Come Later

If there are further cuts, they may not be announced immediately. “It makes a lot of sense for them not to go in with guns blazing,” says Paul Eisenstein, publisher of TheCarConnection. com. “Cerberus needs to learn what’s going on. How much of Chrysler’s problem was a bad cultural fit? But six months from now, if Chrysler’s market share continues to crash, all bets are off.”

The United Auto Workers union (UAW) is groping for a sustainable position on Chrysler’s acquisition by Cerberus. “The UAW has been consistent in saying that it wanted Chrysler to remain a part of DaimlerChrysler,” said a company statement released May 14, 2007, the day the deal was announced. But another company release the same day said: “We are satisfied now that the decision has been made so that our membership and management can focus on designing, engineering and manufacturing the finest quality products for the future success of the Chrysler group.” The UAW declined to comment for this story.

Still, some hold out hope that as a healthy privateequity firm experienced with the management of turnarounds, Cerberus has a shot at succeeding where Detroit has failed for decades. “Maybe having cash available and getting out from under Wall Street will give them shelter to think long-term,” says Eisenstein.

DaimlerChrysler’s timing on the sale of Chrysler Group, due to close in September as workers’ contract expires, has union negotiators on edge.

Some industry observers believe that Cerberus’s Chrysler will drive harder bargains than Ford or GM could, by threatening to pull out of the deal or, after it’s consummated, to declare bankruptcy and sell off the company in pieces. And Cerberus has a lot of work to do to surmount Chrysler’s pension and retiree liabilities, which dwarf the $7 billion it’s paying for the automaker. The Detroit Three’s cumulative liability for retiree healthcare is about $100 billion, according to the Center for Automotive Research in Ann Arbor, Michigan.

There’s no consensus on how, or if, Cerberus’s ownership will affect Chrysler’s contract talks. According to Meyers, the negotiations “will have a big direct affect on workers at all of the Detroit Three, because the first company to negotiate generally sets the terms for the other two.”

But private-equity ownership of an American automaker is a novel phenomenon. “It’s hard to say whether private-equity leverage will drive the dynamics of negotiations for all three” of the Detroit automakers, Eisenstein says.

And if lackluster sales and the loss of market share aren’t enough of a threat to the Detroit Three, other developments pose future challenges to the American auto industry.

New fuel-economy and environmental regulations will hit car companies hard, says Meyers. These mandates will require major investments, and the Japanese-nameplate automakers “are now the ones that have the deep pockets.”

According to Jim Pare, a spokesman for the Canadian Auto Workers union in Toronto, “The key problem is that we can’t export to Korea or Japan, but our governments allow them to dump cars here. Cerberus expressed a real understanding of those issues in our meeting with them.”

American-based workers at Japanese automakers may become restive as their cohorts at Chrysler, GM and Ford face further challenges. Although some foreignbased automakers operating in the United States are faring much better, “Toyota managers have suggested they might change from uniform national wage rates to local wage rates,” says Eisenstein. Such a development might nudge Toyota workers to take a second look at unionizing.

Eisenstein concludes: “The entire industry is really uncertain, white collar as well as blue.”

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