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The Honolulu Advertiser
Posted on: Monday, May 21, 2007

UAW faces tough negotiations

By Tom Krisher
Associated Press

With private equity firm Cerberus acquiring Chrysler, unionized autoworkers likely will face demands for deep givebacks and groundbreaking work rule changes to boost competition with Japanese makers.

PAUL SANCYA | Associated Press

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DETROIT — With Detroit automakers losing billions and their market share in a slump, this summer's contract talks with the United Auto Workers promised to be more contentious than ever.

But last week's announcement that Daimler would sell most of Chrysler to private equity firm Cerberus Capital Management LP likely means the union will face even deeper demands for givebacks as the automakers try to pare costs to compete with Honda and Toyota.

Cerberus is seen wielding a big bat when it comes to the bargaining. Because it bought Chrysler for relatively little, it can threaten to sell the company off in pieces or take it into bankruptcy. It also will be looking for a quick return on its $7.4 billion investment for an 80.1 percent stake in Chrysler, many analysts said.

"What Cerberus does is bring to the forefront the real possibility, if the union doesn't agree to real major changes in the legacy costs, they would face bankruptcy rather than just an incremental adjustment" in wages or benefits, said Harry Katz, dean of the Cornell University School of Industrial and Labor Relations, who has studied the auto industry for 25 years. "It brings home kind of the atom- bomb scare."

The mystery of Cerberus was on the minds of many Chrysler hourly workers last week after the sale was announced, with fears that wages as well as pension and healthcare benefits could be cut. And worries about an industry outsider running an auto company have made their way onto the floors at other automakers' plants.

"I know I'm nervous about it," said Chuck Rogers, president of the UAW local at a General Motors Corp. transmission plant in Ypsilanti, Mich., with more than 2,000 workers. "I'm getting to the point where I'm ready to retire. I'm afraid if an outside company takes over, the UAW won't have any control over it."

Chief among demands from the Detroit Three will be reduction or elimination of their long-term liabilities for retiree healthcare, which together total about $100 billion, said David Cole, chairman of the Center for Automotive Research in Ann Arbor.

With a declining U.S. market stifling top-line growth, the only option to return Chrysler to profitability is to cut costs, especially the estimated $19 billion retiree healthcare obligation, according to analysts.

Cerberus has a lot of leverage in the talks, analysts say, because it can threaten to dismember Chrysler or take it into bankruptcy protection, leaving workers with no health insurance and uncertain pensions.

Yet Cerberus Chairman John Snow, a former U.S. Treasury Secretary, said workers' fears are unfounded. He said Cerberus is different from other private equity firms because it holds companies much longer to turn them around.

In an interview with The Associated Press, he said the characterization of Cerberus as a corporate raider that will split up a company to make money is contrary to Cerberus' history.

"We never invest in a company with any plan other than what can be done to enhance the company's competitiveness and enhance its performance," he said. "We invest in undervalued companies where there are good management strategies, where there's a committed workforce and good management teams."

Cerberus, he said, has no exit strategy for Chrysler and has faith in management's turnaround plan. The firm, he said, holds companies indefinitely.

Snow said Cerberus works well with organized labor, pointing to his relationship with unions while chairman and CEO of railroad operator CSX Corp.

James Brunkenhoefer, a top official of the United Transportation Union, CSX's largest labor group, said CSX dealt with labor fairly under Snow, treating the union as an equal partner in solving problems.

"We had the best relationship with CSX under his tenure than we have had at any of the major railroads in the 25 years that I've been full time with the union," Brunkenhoefer said. "It definitely deteriorated after he left."

The union neither gave up nor gained anything major while Snow was its leader, Brunkenhoefer said.

Snow also notes that Chrysler management, not Cerberus, will bargain with the UAW.

Regardless of who is at the table, they'll have to deal with the retiree healthcare costs or the U.S.-based auto industry will collapse, says Cole.

Wages and benefits are secondary to the long-term healthcare liability, according to Cole.