Newspaper article The Christian Science Monitor

Can Chrysler Rewrite the Labor Rules?

Newspaper article The Christian Science Monitor

Can Chrysler Rewrite the Labor Rules?

Article excerpt

As labor standoffs go, this week's UAW strike against Chrysler breaks new ground: For the first time, one of the Big Three US automakers is guided by the free-wheeling style of ownership known as private equity.

As much as any recent shift, this one signals toworkers that the industry is under extraordinary pressure to remake itself. This isn't your daddy's Detroit.

Under private ownership, Chrysler gives its managers incentives to be more concerned about cost-cutting and profitability - and less concerned about public image - than would a company with publicly traded shares.

This doesn't mean that the new Chrysler is out to bust the United Auto Workers union. The strike that started Wednesday is expected to end with a deal for UAW workers to ratify, as did a brief recent strike against General Motors. But it does add to a climate in which concessions are expected.

"Change is the name of the game," says Michelle Krebs, senior editor at Edmunds AutoObserver.com. "The rules of the game have totally been rewritten, and nobody knows what the rules are."

Already, private ownership has been transforming the auto-parts industry.

Delphi, America's largest auto-parts supplier and a former GM unit, is preparing to emerge from bankruptcy under the wing of several private-investor groups. UAW workers will see big pay cuts and the closing of half the company's US plants. Those moves paved the way for a plan in which private-equity firms will plow more than $2 billion into the restructured company.Union pay cuts were also a key part of the bargain as Tower Automotive, another large partsmaker, exited bankruptcy this summer. Tower is owned by Cerberus Capital Management, the same private equity firm that bought Chrysler this year.

Chrysler is not in as bad financial shape as many suppliers are. But the same pressures of global competition are in play.

"They've certainly signaled that if they don't get what they want, they might outsource" production abroad, Ms. Krebs says.

When Cerberus cut a deal to acquire Chrysler from Germany's Daimler in May, the buyout won tentative approval from the United Auto Workers.

The union had no say in the deal and had expressed misgivings about the notion of private-equity ownership. But UAW president Ron Gettelfinger said the deal offered Chrysler workers their best shot at job security.

"In a way, it represents an opportunity for labor," says David Brophy, who runs the Center for Venture Capital and Private Equity Finance at the University of Michigan's Ross School in Ann Arbor. For a struggling company, Cerberus is "fresh cash that's expressing an interest."

At its best, the buyout offers the prospect that a nimble management team can redefine Chrysler's product lines, which have suffered in recent years in part because of the declining popularity of minivans. …

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