Jobs, Wages, Health Care, Pensions--All in Jeopardy as Chrysler Is Sold to Private Firm

Auto workers are bracing for a bumpy road ahead at Chrysler, following the May 14 announcement that Daimler-Chrysler (DCX) would sell off 80 percent ownership of the company to Cerberus Capital Management, a private equity firm. The surprise sale may tip the balance of power further against the United Auto Workers (UAW) as the union faces the expiration of its agreements with the Big Three auto manufacturers in September.

Even more ominously it may also herald the deepening of disturbing trends faced by U.S. workers as speculative financial interests play more and more of a role in the restructuring of their workplaces. Buyouts of ailing mostly-unionized companies by private equity firms, hedge funds, and private multi-billion dollar investors in the U.S. steel, coal, airlines, and carhaul industries in recent years have on occasion led to “strip-and-flip” style restructuring that downsizes and merges fragments of older companies before selling them off.

Worse for the workers involved in this turnaround restructuring, it has also frequently led to large-scale layoffs, wage/benefit givebacks, the dumping of pension and retiree health care benefits, and the weakening of union strength in affected industries. Though often aided by federal bankruptcy courts, this process is not dependent on bankruptcy alone--a decided advantage to bankruptcy-adverse companies like the Big Three.

In the lead-up to the Cerberus sale, union leaders in the United Auto Workers, the Canadian Auto Workers, and I.G. Metall (Germany’s largest metalworking union) voiced fears that such a sale might lead to layoffs, wage and benefit concessions, or the dumping of pension and retiree health care benefits.

“They’re going to give us a couple years [to see if they can make profit] and if they can’t they’re going to break us apart, and break off Jeep. I’m scared to retire,” said Paul Wohlfarth, a member of UAW Local 12 with 30 years in at the Chrysler Jeep plant in Toledo, Ohio.

SEEKING CONCESSIONS

“It’s bull that private equity firms are looking for long term-investment,” said Mike Parker, an electrician at Chrysler’s Warren, Michigan plant and a member of UAW Local 1700. “One, that’s certainly not been Cerberus’s rep and two, look up what’s happened at [bankrupt auto parts manufacturer] Delphi.”

In its 15 years of operation, Cerberus has bought up companies in a range of industries, from real estate to governmental outsourcing services to firearms to transportation (totaling over $24 billion in assets). Cerberus then institutes cost-cutting measures and sells the restructured companies back to investors at big profits.

Last year it began making bids for a number of pieces of the U.S. auto industry, including controlling interests in GM’s lucrative financing arm, GMAC, Tower Automotive, and Delphi. Besides Chrysler, it currently controls 51 percent of GMAC and five auto parts suppliers: GDX Automotive, CTA Acoustics, Guildford Mills, and Peguform.

Cerberus’s bid for Delphi was opposed by the UAW after the firm announced it was seeking steep cuts in the modest wage and benefit increases promised to Delphi workers by 2011. While it’s not immediately clear what Cerberus will be asking of its newly acquired DCX workers, the biggest ball in play is health care benefits, one of the first labor costs companies like Cerberus look to shed.

HEALTH CARE SHIFTING

Cerberus’s expected drive for concessions may also force the UAW to shoulder the Big Three’s health care obligations. The Wall Street Journal and others in the business press have speculated that auto makers may push for a deal that will have the union assume a huge chunk of Chrysler’s health care costs in a voluntary employees beneficiary association (VEBA, a union-administered health care fund).

SUPPORT LABOR NOTES

BECOME A MONTHLY DONOR

Give $10 a month or more and get our "Fight the Boss, Build the Union" T-shirt.

GM and Ford have sought similar agreements in the last two years. If the companies prevail the VEBA would assume an estimated $95 billion in current and future health care costs.

UAW Local 1700 member Brett Talbot-Ward said that health care is of “vital importance” to workers because of the dangerous work they do. Auto companies, said Talbot-Ward, “create the situation were they injure us and they should be the ones to deal with that. The unions need to be constantly vigilant and trying to get more for their workers, not having to deal with concessionary behavior with their workforce.”

Talbot-Ward said that a potential VEBA situation would weaken their union, as the UAW could be forced to administer health care concessions to its own members.

THE DEALT HAND

Despite its previous vocal opposition to a Chrysler sell-off, the UAW International was quick to accept the sale as an accomplished fact. At a May 15 press conference UAW President Ron Gettelfinger said, “Based on everything that we heard, we, without reservation, have made the decision that we would support the decision.”

Leaders of the Canadian Auto Workers were initially not as accepting. CAW President Buzz Hargrove said that he was “pissed off” that the CAW was not included in discussions about the purchase and added that the CAW would not approve until Cerberus promised to stave off job loss for 15 months.

Hargrove said that the CAW had problems with the idea of a private equity firm buying the company: “They’re not interested in buying cars. This could be a bicycle shop as far as they’re concerned. As long as they see an opportunity to make a lot of money in a short period of time they’d be buying in.”

Within a few days Hargrove changed his tune and supported the purchase after getting a guarantee that Cerberus would not institute layoffs beyond Chrysler’s restructuring plan laid out earlier this spring.

WHAT NEXT?

With workers making huge concessions to both GM and Ford in recent years, Chrysler was the UAW’s foot in the door around wages and benefits. With DCX sold off, the union could be walking into negotiations this fall with less leverage than ever.

“What will happen at the next contract depends on what happens now,” said Parker. “If we are not in position and ready to go, the company is going to walk away with our contracts. The union needs to build a credible strike threat, work-to-rule threat, or inside strategy, so they can have some inside bargaining power.”

Unions in other industries facing similar crisis have found new ways to play a role, like the Steelworkers who’ve targeted and locked out buyout deals such as the attempted November 2006 merger between Brazilian steel manufacturer and U.S.-based Wheeling-Pittsburgh. Though the Steelworkers have not successfully waged full-scale fightbacks in steel, they have had some limited success in using strong successorship language in contracts (fought for in better times) and financial tactics to halt takeover bids.

Wohlfarth said he hopes the UAW will use this opportunity to start organizing in other parts of manufacturing to stave off or slow down concessions. “Once the Big Three cuts our wages and benefits, I think there’s going to be a downward spiral of wages and benefits [across the auto industry]. Toyota workers have been living off the back of the UAW and say they don’t need a union, but they’re in for a rude awakening.”