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Chrysler Sale to Cerberus Could Mean Tough Negotiations for UAW

May 14, 2007
Related Topics: Mergers and Acquisitions, Corporate Culture, Labor Relations, Latest News

Monday’s announcement that private equity firm Cerberus Capital Management is buying Chrysler for $7.4 billion does not bode well for the United Auto Workers’ negotiations with the former “Big Three” automakers later this year.

Only eight months ago, the UAW was refusing to grant health care concessions to Chrysler, even though General Motors and Ford Motor Co. had gotten them.

But now it seems the autoworkers’ union is in a much meeker position with regards to the three domestic automakers, observers say.

In February, DaimlerChrysler said it was laying off 13,000 workers during the next three years, and observers predict that given Chrysler’s new ownership, more cuts could be on the horizon.

“Everyone knows that private equity firms’ primary objective is to make money,” says David Gregory, a labor law professor at St. John’s University in New York. “Cerberus is going to be ruthless in seeking out major concessions.”

Despite this notion, UAW president Ron Gettelfinger said in a statement announcing the deal that “the transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group and Daimler.”

The UAW seems to know the position it’s in but doesn’t have much choice in the matter, says Pete Hastings, vice president of corporate fixed income research at Memphis, Tennessee-based Morgan Keegan.

“They are just trying to minimize concessions at this point,” he says. “It’s hard to play hardball when you are saying, ‘Please don’t fire all of us and cut all of our benefits.’ ”

Cerberus owns an array of businesses and has executives with strong auto industry backgrounds, putting the UAW in a tougher negotiating position, Hastings says. David Thursfield, the former head of Ford’s European business, is a senior member of the operating team in Cerberus’ automotive and industrial practice.

“Cerberus has an experienced executive team and they will be running the negotiations,” Hastings says.

And it’s not just negotiations with the new Chrysler that are going to be difficult for the UAW, observers say.

While the 2003 negotiations between the union, GM, Ford and Chrysler went smoothly, few experts predict that will be the case with this year’s talks, which begin this summer.

In 2003, the union was able to negotiate with all three automakers at the same time as part of one master agreement, says Gary Chaison, a professor of industrial relations at Clark University in Worcester, Massachusetts.

“But now Chrysler looks very different from Ford, and both of these companies are very different from General Motors,” he says. “Chrysler is a new company, Ford is in the middle of downsizing, and General Motors is still tied to Delphi. That’s going to mean the union will have to approach each company individually.”

One thing that seems clear is the chances of a union strike are greatly diminished by the Chrysler purchase, Gregory says.

“To strike against Chrysler would be the death knell of the UAW, and it’s not like Ford and GM are particularly healthy,” he says. “I think this greatly eliminates the threat of a strike.”

—Jessica Marquez


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