Chrysler Reaches Labor Accord With U.S. Union, CAW Ratification
April 27 (Bloomberg) -- Chrysler LLC, racing against an April 30 deadline to cut labor costs or face bankruptcy, reached a tentative contract agreement with its biggest U.S. union and won ratification of an accord with Canadian workers.
Members of the United Auto Workers must still vote on their proposed money-saving contract, according to a statement yesterday from the Detroit-based union. Employees represented by the Canadian Auto Workers approved a contract that may save the automaker C$240 million ($197 million) annually.
The moves boost Chrysler’s attempt to avoid a government- ordered bankruptcy. Union workers must accept less-generous contracts so Chrysler can form an alliance with Italy’s Fiat SpA and qualify for more U.S. and Canadian aid. The company still must get lenders to erase most of $6.9 billion in secured debts.
“The chances of them pulling this off are much better now,” said Erich Merkle, an independent auto analyst in Grand Rapids, Michigan. “I wouldn’t say they are completely out of the woods yet.”
Chrysler received a $4 billion loan from the government in early January and has been told it will get $500 million more. It may get as much as $6 billion in additional loans by completing a Fiat alliance before the April 30 deadline.
“Chrysler continues to focus on reaching the deadlines set by the U.S. and Canadian governments,” said Shawn Morgan, a company spokeswoman, in an interview. “The announcements this weekend are important steps toward reaching these objectives.”
Health-Care Fund
The new UAW contract must be ratified by Auburn Hills, Michigan-based Chrysler’s 26,800 U.S. workers represented by the union.
“The patience, resolve and determination of UAW members in these difficult times is extraordinary, and has made it possible for us to reach the agreement we will present to our membership,” said UAW President Ron Gettelfinger in the statement.
The UAW’s health-care trust fund for retirees will take about 20 percent ownership in Chrysler after the automaker’s restructuring in exchange for lowering the company’s obligation to contribute cash to the $10.6 billion fund, people familiar with the negotiations have said.
Benefit Concessions
“We commend the UAW’s leadership for their endless determination and perseverance in reaching this tentative agreement, especially during these unprecedented economic circumstances that plague the automotive industry,” said Al Iacobelli, lead negotiator for Chrysler, in a statement.
The CAW, representing about 8,000 Chrysler workers in Ontario, said in a statement yesterday that 87 percent of votes cast were in favor of ratifying the accord.
CAW leaders reached an agreement with Chrysler on April 24 after two months of on-and-off talks. The members will give up benefits including tuition rebates and a car-buying program. Base wages and pensions do not change.
Fiat Chief Executive Officer Sergio Marchionne had said he wouldn’t form the Chrysler alliance without the new CAW savings. Cerberus Capital Management LP owns 80.1 percent of Chrysler, while former parent Daimler AG owns the rest.
Chrysler’s Canadian union deal is no guarantee that the company will stay out of bankruptcy, Lewenza said April 24.
The CAW was told by Chrysler that in the event of a bankruptcy, the company would be “split in half: The new company and the old company,” Lewenza said. “And the old company would be liquidated.”
Shift Eliminated
The CAW’s Canadian operations would be placed in the new company should Chrysler file for bankruptcy court protection, Lewenza said.
Chrysler will cut the third shift at the company’s factory in Windsor, Ontario, CAW officials said. They plan to pursue Fiat work for the assembly plant, which makes Dodge Grand Caravan and Chrysler Town & Country minivans.
The CAW said its agreement includes more cost-saving provisions than a contract negotiated with General Motors Corp., which is also trying to restructure out of court. Additional concessions include the elimination of semi-private hospital coverage and of a one-time C$3,500 vacation buyout negotiated last year.
The CAW will now begin bargaining with GM and Ford Motor Co. on similar agreements in Canada, Lewenza said.
GM had said that its contract, ratified last month, would cut total labor costs below those of U.S. operations of foreign automakers such as Toyota Motor Corp.
Chrysler and the Canadian and Ontario governments had demanded C$19 an hour in cuts in benefits and other concessions to reduce hourly labor costs to C$57. The C$240 million in annual savings over 12.5 million hours worked meets that benchmark, the union said.
The CAW and Chrysler agreed to establish a retiree health- care trust, similar to those negotiated by the UAW, which represents hourly workers at the company’s U.S. factories.
