The head of the United Auto Workers union has unexpectedly endorsed Cerberus Capital Management’s $7.4 billion (€ 5.5 billion) agreed bid for the Chrysler Group. UAW president Ron Gettelfinger, a member of Chrysler’s supervisory board, said previously he would oppose such a sale based on concerns a private equity firm would “strip and flip” the troubled automaker, which had already planned to shed 13,000 jobs and close all or some of its North American manufacturing plants.
Gettelfinger’s mind was apparently changed following a series of meetings with DaimlerChrysler executives.
In Stuttgart, Germany, he met with DaimlerChrysler chairman Dieter Zetsche and Chrysler president and chief executive Tom LaSorda, where it was explained to him that “the status quo for the Chrysler Group was no longer an option”, Gettelfinger said in a statement. Additionally, Gettelfinger said, the investor selection process was fully explained.
Subsequent meetings between Chrysler and UAW leadership regarding the buyout’s potential impact on members convinced the union’s leaders that “the transaction with Cerberus is in the best interest of our membership, the Chrysler Group and Daimler”.
Cerberus’ agreement to shoulder billions in pension and healthcare costs for Chrysler employees presumably contributed to the union’s support. The private equity firm was not liable for pension obligations in its 2006, $14 billion buyout of GMAC, General Motors’ financing arm, which furthered speculation that auto industry pensions would collapse in the same way they had in the airline and steel industries.
The UAW’s refusal to endorse a plan in which Chrysler workers would have forgone a $1 per hour raise to combat company heath insurance costs – similar to previous healthcare deals agreed with Ford and General Motors – propelled its sale, David Cole, chairman of the Center for Automotive Research, previously told the Detroit News.
“When labor didn’t give Chrysler the same arrangement that was it,” he said.
Cole told Reuters the Chrysler sale will be a key bargaining chip, likely used to convince workers of the need for concessions, in contract talks scheduled for July.
The UAW’s endorsement of the Chrysler/Cerberus deal comes as private equity deals face heightened public scrutiny and opposition from unions in the US and abroad.
Service Employees International Union, the US’ largest labour union, has launched an aggressive private equity campaign, and this week its president will testify before the House Financial Services Committee hearing, “Private Equity’s Effects on Workers and Firms”.