The Columbus Dispatch (Ohio), May 20, 2007, Sunday
Autoworkers wary of new Chrysler boss
Chrysler workers, like these at a Warren, Mich., plant, are uneasy about contract concessions that Cerberus Capital Management, the company's new majority owner, might seek with the UAW.
But Monday's announcement that Daimler would sell most of Chrysler to private-equity firm Cerberus Capital Management LP likely means the union will face even greater demands for givebacks as the automakers try to pare costs to compete with Honda and Toyota.
Chyrsler has 80,000 employees, including 6,700 in Cleveland and Toledo.
Cerberus is seen wielding a big bat regarding bargaining. Because it bought Chrysler for relatively little, it can threaten to sell off the company 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, pension and health-care 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 health care, which total about $100 billion, said David Cole, chairman of the Center for Automotive Research in Ann Arbor.
With a declining U.S. market stifling growth, the only option to return Chrysler to profitability is to cut costs, especially the estimated $19 billion retiree health-care 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 the workers' fears are unfounded. He said that Cerberus is different from other private-equity firms because it holds companies much longer to turn them around.
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."
Cerberus, he said, has no exit strategy for Chrysler and has faith in its management's turnaround plan.
Cerberus bought Vanguard Car Rental, which operates the Alamo and National Brands, out of bankruptcy in 2003, and was criticized for swiftly moving the corporate headquarters and cutting hundreds of jobs. It wasn't long after the 2004 acquisition of the Mervyn's department store chain that Cerberus closed 80 stores and exited two of its biggest markets.
But Snow said Cerberus works well with organized labor, pointing to his relationship with unions while chairman and chief executive of railroad operator CSX Corp.
James Brunkenhoefer, national legislative director for 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."
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