UAW's Chrysler stake comes without authority

The United Auto Workers union would appear to be the big winner in the Chrysler bankruptcy saga, having exercised its considerable political muscle to win a 55% stake in the country's third-largest automaker.

But when you consider the 55% is in a company that lost $16.8 billion last year and has seen its sales drop by half, the victory seems less impressive. Especially since the union's stock must necessarily be converted at some point to cash to pay billions of dollars in retiree health care bills over the next 25 years.

Plus, the union's control in the boardroom will be limited. Despite the large stake, it gets only one seat on a nine-member board that will govern a new Chrysler-Fiat joint venture.

Yes, the union could still come out the winner at Chrysler and at General Motors Corp., which has offered the UAW a 39% stake as part of its own reorganization plan. But that depends on the iffy prospect of the companies making money again and their stock values sharply rising.

"I think it's a whole lot weaker than it appears," said Gerald Meyers, a University of Michigan business professor and former CEO of American Motors Corp. "I would say the UAW wouldn't want to get into the speculative game of the stock market. That's not reassuring to retirees."

Unions have in the past traded an ownership stake in a struggling company for wage cuts or other money-saving steps. For the most part the deals, such as an employee stock ownership plan at UAL Corp., parent of United Airlines, have worked well at first, only to fall apart when economic times grew tough, with labor and management fighting as profits declined.

The UAW started making concessions during 2007 contract negotiations and that helped in negotiating the stakes they stand to gain now. At the time, both GM and Chrysler had huge labor cost disadvantages compared with Japanese automakers, mainly because they have far more retirees and had agreed to pay their health care bills.

For GM, the health care tab is projected to total $46.7 billion over the lives of about 350,000 retirees and spouses. At Chrysler, it's $10.9 billion for around 82,000 retirees.

So to unload the costs, the companies persuaded a reluctant UAW to take billions in cash to set up trust funds called voluntary employees beneficiary associations, or VEBAs, to pay the bills starting next year.

But the U.S. auto market went bad and both automakers ran out of cash. Enter government financing and the Obama administration, which engineered the Chrysler-UAW deal. Chrysler has now formed an alliance with Fiat, and the government will finance what it hopes will be a quick Chrysler bankruptcy. Chrysler plans to close five more factories and shed thousands more workers as it slims down and resets to build Fiat-designed fuel-efficient cars in North America.

The UAW spent nearly $5 million in independent expenditures to promote Obama's campaign, according to the nonpartisan Center for Responsive Politics, and some Chrysler debtholders contend that the union was unfairly rewarded for that support. Secured creditors were offered roughly 30 cents on the dollar for $6.9 billion in debt. A few balked and the deal fell apart late Wednesday, triggering Thursday's bankruptcy filing.

The UAW's reward, though, could turn out to be punishment if the stock price doesn't rise.

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