In efforts to save the domestic auto industry, no other group is getting as good a deal – it might appear – as the UAW. Under the Chrysler deal, the UAW’s retiree health fund will end up with 55% of Chrysler, while the deal proposed by GM would leave the union owning about 39% of the company.
The Chrysler plan envisions a partnership between Fiat and the United Auto Workers union, one of the more peculiar ownership structures in Chrysler's tortured history. The Treasury will contribute $3.3 billion to the plan: $2 billion to pay off Chrysler's lenders and the rest to pay the company's bills during bankruptcy. It said it is prepared to pitch in $4.76 billion more to keep Chrysler running for several years. That's on top of $4 billion the government lent Chrysler in previous months, a debt forgiven as part of negotiations with the UAW and lenders.
Under the GM plan, it is asking the Treasury Department for an additional $11.6 billion in loans, on top of the $15.4 billion it has already received. It envisions giving the government at least half ownership of the company as payment for half of the loans. At the same time, GM said it would use stock instead of cash to pay off half the $20.4 billion it owes a United Auto Workers fund to cover retiree health care. That stock would leave the union owning about 39% of GM.
But when you consider the 55 percent Chrysler ownership is in a company that lost $16.8 billion last year and has seen its sales drop by half, the victory seems less impressive. Especially since the union's stock must necessarily be converted at some point to cash to pay billions of dollars in retiree health care bills over the next 25 years. Plus, the union's control in the boardroom will be limited. Despite the large stake, it gets only one seat on a nine-member board that will govern a new Chrysler-Fiat joint venture.
For GM, the health care tab is projected to total $46.7 billion over the lives of about 350,000 retirees and spouses. At Chrysler, it's $10.9 billion for around 82,000 retirees. So to unload the costs, the companies persuaded a reluctant UAW to take billions in cash to set up trust funds called voluntary employees beneficiary associations, or VEBAs, to pay the bills starting next year.
But the U.S. auto market went bad and both automakers ran out of cash. Enter government financing and the Obama administration, which engineered the Chrysler-UAW deal. Chrysler has now formed an alliance with Fiat, and the government will finance what it hopes will be a quick Chrysler bankruptcy. Chrysler plans to close five more factories and shed thousands more workers as it slims down and resets to build Fiat-designed fuel-efficient cars in North America.
"What's happening at Chrysler and GM is not employee ownership in any recognizable way," said Corey Rosen, founder and executive director of the nonprofit National Center for Employee Ownership. "The employees don't own any part of Chrysler or GM, it's the health trust, and they're going to sell that stock as soon as they can. It's more like somebody saying 'I can't pay the money I owe you, so take some stock and you can sell it.'"
That's exactly what the union intends to do, its president Ron Gettelfinger said Friday in an interview with National Public Radio.
Source(s): Associated Press, UAW wins big Chrysler stake but can't run company by Tom Krisher and Dave Carpenter, May 2nd 2009; Wall Street Journal, Chrysler pushed into Fiat’s arms , May 1st, 2009; Wall Street Journal GM Offers U.S. a Majorit y Stake April 28th 2009.
