Posted by: David Kiley on April 27, 2009
In cutting major concession deals with General Motors and Chrysler this week, the United Auto Workers are walking a whole new line as it goes from being just a labor union to owners of the companies its members work for.
A deal struck with General Motors exchanges debt owed to the union for 39% of the troubled automaker. A separate deal with Chrysler will give the 74-year old labor organization 55% of the privately held Chrysler.
In both companies, the union will have board representatives. It will, as such, have a say in hiring the next CEOs of the automakers, product decisions and compensation. GM Fred “Fritz” Henderson and whoever the incoming CEO of Chrysler will be if the company is saved from liquidation, will be effectively working for the union membership.
As the union has been a frequent critic of the disparity between compensation for C-suite managers and factory floor workers, it will be interesting to see what levels of compensation the union board members vote for.
The union will in fact own more of GM and Chrysler than the Ford family owns of Ford Motor Co. It will own larger stakes in GM and Chrysler than billionaire financier Kirk Kerkorian was able to accumulate in his runs at both companies in the last 12 years.
Union members can pretty much burn those picket signs they threaten to drag out every few years when contracts get re-negotiated. Threatening a strike at a GM or Chrysler facility, or even a parts plant that supplies one of the automakers, would be shooting themselves in both feet as long as they hold such large stakes in the companies.
Ford remains the only U.S. automaker that has neither taken U.S. Treasury loans, nor had to give the union equity in the company; though that could change by year-end because of an agreement struck with the union last month that gives the automaker the option of paying billions in future health-care obligations to the union in Ford stock instead of cash.
According to the agreement struck with Chrysler, which is expected to be ratified by members this week, Chrysler will issue a $4.59 billion note to a health-care trust fund that the union will manage for retired workers. Chrysler will pay $300 million in cash into the trust fund in 2010 and 2011, and increasing amounts up to $823 million in the years 2019 to 2023.
Daimler AG, which still retains 19.9% of Chrysler, left over from its purchase of Chrysler in 1998, agreed Monday to give up that equity and pay up to $600 million into the automaker’s pension fund.
In order to satisfy the White House’s conditions for getting an additional $6 billion in loans, on top of the $4.5 billion it has already received, Chrysler still has to strike a substantial deal with banks and private equity funds holding $6.9 billion in debt secured by Chrysler’s hard assets like its Jeep business, real estate, factories, etc.
Those negotiations have made little progress, and banks have objected to the UAW getting so much equity in the company. The White House wants the banks to accept no more than $1.5 billion, and 5%-10% equity in the company.
In the Chrysler deal, the union is losing cost-of-living adjustments to pay, and accepting stiffer limits on over-time pay and a reduction in paid holidays. For all practical purposes, union pay and benefits are practically the same now as non-union workers employed by Toyota and Honda in the U.S.
As union members, such cuts and concessions are painful. But to owners of the companies now, it makes Chrysler, and GM, more globally competitive as long as they stay in business.
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