Chrysler sale faces UAW snag

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April 25, 2007|By Detroit Free Press

DETROIT -- A deal to sell the Chrysler Group likely will get tied up in the contract negotiations between the Detroit Three and the United Auto Workers union, a growing number of auto industry experts say.

That means a final deal to sell Chrysler is unlikely to be made before Sept. 14, the day the labor contract expires, complicating both the talks for a new labor agreement and negotiations to sell the Auburn Hills, Mich., unit of DaimlerChrysler AG.

Early on, the thinking had been that DaimlerChrysler would sell Chrysler quickly, so the new buyer could negotiate the contract, but that now looks unlikely, experts say.

Contract negotiations will begin officially in July and, if history is any guide, will go up to the deadline - if not past it.

Any serious buyer for Chrysler likely will want concessions from the union on health care costs - concessions the UAW won't want to accept before it negotiates new contracts with Ford Motor Co. and General Motors Corp., industry observers say.

Even if DaimlerChrysler picks a final bidder with which to negotiate in the next three weeks, as some suspect, it's unlikely a deal could be completed quickly.

"The UAW is going to want to go all of the way until the 14th of September on everything," said Gerald C. Meyers, University of Michigan business professor and former chairman of American Motors Corp.

That makes the labor negotiations "ambiguous, speculative and depressing," he said. "There will be a lot of qualifiers, and ifs and buts and maybes until you get down to the very end when you see what the UAW will really settle for."

Harley Shaiken, a professor at the University of California at Berkeley who specializes in labor issues, agreed that the situation becomes even more complicated as September approaches.

"Every passing week tangles this up much, much more tightly with the contract expiration. That means from the union's point of view, it isn't simply the issue regarding Chrysler, it's the issues through the entire industry that could be determined at Chrysler," Shaiken said.

"In effect, Chrysler could become the target company by default - that may be very different than what the UAW wants to see happen."

Such major contract negotiations are always difficult, but the possibility of a sale puts even more pressure on the process.

Mergers and acquisitions expert Van E. Conway, senior managing director with Conway MacKenzie & Dunleavy, said most deals he has negotiated that involved organized labor were contingent on negotiating with the union before a purchase was completed.

"I used to do a lot of union acquisitions back in the old days ... and we always did them subject to a negotiation" with the union, he said. "If we couldn't get the negotiation done, we didn't do" the deal.

"Sometimes we didn't get it done, by the way," he added. "Then typically what happened was that the companies were shut down."

In Chrysler's case, an estimated $16.5 billion in pension and health care liabilities is at stake.

"It's such a huge contingency, it's hard to imagine that a buyer would do this deal without resolution of that contingency," Conway said.

DaimlerChrysler spokesman Han Tjan declined to comment Monday. Chrysler workers in Auburn Hills had hoped for a quick resolution Feb. 14, when DaimlerChrysler chief executive Dieter Zetsche indicated that Chrysler might be sold.

The U.S. unit posted operating losses of $1.5 billion in 2006 and Chrysler is undergoing its second major turnaround plan in the past decade, which involves shedding 13,000 jobs, closing an assembly plant and investing in more fuel-efficient engine technology.

DaimlerChrysler executives appear to be taking three potential bidders most seriously. Blackstone Group, a private-equity firm, has put in the highest offer, a German magazine has reported. Another private-equity firm, Cerberus Capital Management, apparently has gotten an edge by hiring former Chrysler Chief Operating Officer Wolfgang Bernhard. A possible union favorite is Canadian auto supplier Magna International Inc.

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