Chrysler, UAW Bargain as Strike Deadline Approaches (Update2)

"Labor"

10/10/2007

By John Lippert


Oct. 10 (Bloomberg) -- Chrysler LLC and the United Auto Workers continued to bargain over jobs and health care past midnight, hours before a deadline for the first strike at the automaker in 10 years.

More than 45,000 UAW workers at the third-largest U.S. automaker may walk off their jobs at 11 a.m. New York time today. In a similar showdown last month, General Motors Corp. workers staged a two-day walkout before agreeing on a four-year contract.

Ron Gettelfinger, 63, the UAW president, is negotiating for a Chrysler contract patterned after the GM accord, including job guarantees in exchange for a union-run retiree health-care trust. He's bargaining for the first time with Chrysler's new owner, Cerberus Capital Management LP, a New York buyout firm.

``This is a major test for whether private equity thinks U.S.-located manufacturing is even feasible,'' said Sean McAlinden, an analyst at the Center for Automotive Research in Ann Arbor, Michigan.

GM's contract features a commitment by the automaker to shed $50 billion in retiree health-care obligations by putting $29.9 billion into the trust, known as a Voluntary Employee Beneficiary Association, or VEBA.

Health Care Costs

GM, Ford and Chrysler have said retiree health costs are part of the reason they must pay $25 to $30 more an hour for American factory workers than Japanese rivals Toyota Motor Corp. and Honda Motor Co. pay at their U.S. plants.

In 2005, the UAW agreed to health-care concessions with GM and Ford that diverted pay increases to finance retiree health care. To provide the same concession to Chrysler now, the UAW may agree to divert even more pay increases triggered by future inflation to health care, McAlinden said.

In the GM contract this year, the union agreed to divert 10 cents per worker per quarter of future cost-of-living increases to health care.

GM also assured future work for at least 55 of 82 UAW plants in the U.S. and agreed to stop sending new work to outside suppliers. The automaker in turn will pay less to new employees, meaning labor costs will decline as current factory workers retire.

Gettelfinger notified local union chapters at 31 U.S. factories and technical centers of today's strike deadline in an Oct. 8 letter. ``The company has thus far failed to make an offer that adequately addressed the needs of the membership,'' Gettelfinger said in the letter.

Roger Kerson, a UAW spokesman; Michele Tinson, a Chrysler spokeswoman; and Peter Duda, a Cerberus spokesman, declined to comment on the negotiations.

Contract Extension

The two sides may still reach an agreement before today's deadline or decide to agree on a further contract extension if they make sufficient progress. The UAW first agreed to extend its contracts with Chrysler and Ford Motor Co. as it concentrated on GM; on Oct. 5, Chrysler became the focus.

GM workers are scheduled to conclude their voting on the GM contract today. Kerson said he didn't know when the results will be announced.

With the new contract, GM will cut its total annual operating cost for UAW labor by 20 percent by 2011, McAlinden said. That means the largest U.S. automaker will save $3 billion per year out of a total UAW labor bill of $15.3 billion in 2006, he said.

Retiree Ratio

By simply adopting the GM pattern, Chrysler may not be able to achieve such savings by 2011, McAlinden said. That's because GM has a bigger retiree health care burden and will benefit faster from the changes. GM has 4.4 retirees for every active worker compared with 2.5 retirees for every active worker at Chrysler.

To match GM's savings, Chrysler would have to cut $1.5 billion from a UAW labor bill that totaled $7.7 billion last year, McAlinden said. Chrysler won't be able to offer buyouts to replace older workers with a younger workforce that earns less as rapidly as GM, McAlinden said. That's because 30 percent of Chrysler workers are eligible to retire in five years, compared with 63.5 percent at GM, according to UAW data.

To generate savings faster, the company is likely to expand a plan announced in February to cut 13,000 jobs, McAlinden said.

Job Cuts

``The workers are angry and they're scared,'' said Paul Thayer, 45, a welder repairman with 15 years experience at a Chrysler stamping plant in Warren, Michigan. ``Are we going to be out for a week or a month? We haven't been told anything.''

Chrysler lost $680 million in 2006. In August, Chief Executive Officer Robert Nardelli, 59, said the company may be trying to build and sell too many models. The company is now considering a plan to cut an additional 1,500 salaried and contract jobs, people familiar with the strategy said this week.

``We're seeing a far-reaching restructuring of the U.S. auto industry,'' said Harley Shaiken, a labor professor at the University of California at Berkeley. ``With the future of the union at stake, it's not surprising there would be differences on some of these issues. It's not impossible that these differences could slip into a picket line.''