Workers May Pay For Chrysler's Sale

(CBS/AP)  Chrysler's 80,000 workers may pay the price for German-based parent DaimlerChrysler AG's decision on Monday to turn over the keys of its U.S. car company to private equity firm Cerberus Capital Management for $7.4 billion.

Talks begin soon between the United Auto Workers and Detroit's carmakers on a national contract. Analysts expect Cerberus, headed by former Treasury Secretary John Snow, to push for radical changes at its money-losing Chrysler, Jeep and Dodge operations.

The announcement sent shudders through much of Chrysler's workforce, despite assurances from Chrysler CEO Tom LaSorda that there are no major plans under discussion with Cerberus to cut jobs beyond a previously announced restructuring plan.

That wasn't good enough for Canadian Auto Workers President Buzz Hargrove. He said he had "enormous concerns," noting that many private equity groups have a long-standing history of "job cuts as opposed to job creation."

The sale of 80.1 percent of Chrysler to Cerberus Capital Management LP ends a messy $36 billion marriage in 1998 that was set up to create the ultimate global automotive powerhouse.

Instead, the maker of the upscale Mercedes-Benz brand of cars found itself, like competitors Ford and General Motors, battered by rising pension and retiree health costs in the United States as Toyota and other Asian manufacturers won the hearts of U.S. consumers with what many view as more reliable, fuel-efficient models.

Germany-based DaimlerChrysler said it would keep a 19.1 percent stake in the renamed Chrysler Holdings LLC. The private company will be run by Cerberus, which said it would keep the present management in place.

In the end, Daimler was ready to pay any price for a divorce, reports CBS News correspondent Anthony Mason. As part of the deal, Cerberus will assume Chrysler's health care liabilities, estimated at about $18 billion.

The $7.4 billion deal works this way: Cerberus will invest $5 billion in the new Chrysler's automotive operations, $1.05 billion in Chrysler's financial arm and pay $1.35 billion to DaimlerChrysler. But the German automaker agreed to absorb $1.6 billion in restructuring-related costs and loan the new company $400 million. Depending on whether the loan is repaid, its out-of-pocket costs could ultimately total $650 million.

Cerberus is heavily invested in the auto industry, adds Mason, with stakes in Guilford Mills, the largest seat supplier in the United States, and GMAC, the finance arm of General Motors.

"They bring some financial discipline that I think this industry has needed," David Cole of the Center for Auto Research told auto reporter Jeff Gilbert of CBS radio station WWJ. "Unfortunately, that's often very painful."

UAW President Ron Gettelfinger said Monday that after his pitch to keep Daimler and Chrysler together failed, it became clear that Cerberus was the best option for workers.

"So once that decision's been made, then you've got to deal with the cards that you're dealt," he said Monday afternoon, adding that he did not think the sale would have an impact on upcoming national contract talks.

Chrysler and the other Detroit automakers were caught flat-footed when gasoline prices spiked to around $3 per gallon after Hurricane Katrina, sending buyers away from the truck-based models on which they made most of their money.

Snow tried to reassure workers during a news conference, saying his company is in the investment for the long term, with plans to keep Chrysler's management and work with unions to return the struggling automaker to profitability.

"We think at this particular point in Chrysler's history, there may be opportunities in the private world, the world of private investment, that create more room for growth and expansion, that allow management to focus with greater intensity on the day-to-day business of producing better cars," Snow said at a news conference in Germany.

Car buyers have little to fear from the transaction, according to one industry analyst, because warranties and spare parts requirements must be honored by law.

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[rhs648]

My son, now a doctor, worked in a non-union grocery store in high school and college. A new unionized grocery store opened. They handed out fliers where my son worked talking about higher wages with the union grocery store. My son left his job for the unionized grocery store. He paid a membership fee to join the union. Shortly after he started the new job, his hours were halved and he earned less each hour because of union dues. Fortunately, his old boss took him back without hard feelings. The grass isn't always greener on the other side.

[ralan40]

89% of my Honda Civic was made in the US by Americans. This includes the parts as well. I have yet to see a so-called american car company make a claim that is even close to that. So let me get this straight: Dialmer-Benz drops Chrysler like a bad habit and this new company is not making any changes??? I have zero sympathy for American car companies or the unions that are tied to them. If they can't compete in a global marketplace then oh well. Management needs to take pay cuts at the same percentage as the unions if they want to survive.

[tomar0317]

American vehicles simply can't compare to Japanese vehicles that are even made in this country. The lazy folks that put the American cars together are too interested in themselves than tightening bolts and building engines that don't constantly need repair. Management at these companies is even worse. Their greed for money with no output of money has caught up to them. Plead as they will for government assistance, they are the reason for failure. They could have had fuel efficient vehicles a long time ago but chose to keep the profits for themselves. The American auto industry is getting what it has deserved for way too long... a good kick in the
groin!

[navyretired2]

I've owned 3 Chrysler cars, covering the Iacocca era to now, and will be buying a Daytona Charger soon. I have NEVER, EVER, had a problem with any of them, then again I keep my maintenance up on my vehicles and drive respectfully, instead of pounding the hell out of them, skipping oil changes and tune-ups, then complaining "AMERICAN CARS SUCK!!"

Built in Canada, or here, or wherever, Dodge is still a name I respect and will continue to support. Glad its in American hands again...hoping for the best.

[crater7]

The American Middle Class Screwed Again............

[interobserv]

What did they say? They aer NOT going to strip and flip Chrysler? Whom are they kidding. The only thing Cerebreus cares about is stockholder equity. The only way to increase that is to devour companies like Chrysler and then sell them off piecemeal.

Chrysler workers - be afraid, be very afraid!!!

[observer15]

Chrysler can be turned back to profitability but the process may be painful. The pain can be mitigated if management and labor move fwd together toward a common goal. Unfortunately, as has been pointed out already, this would be an uncommon approach in America. We're largely a competetive, adversarial nation. We can be cooperative, but it's not our default setting. This isn't bad or good to me but merely one of many ways of approaching things. Like all others, it has it's own up- and down-sides which tend to change with the situation. In a nation where 'freedom' and 'choice' are revered words and 'perception' is the filter, it'll be interesting to see what the participants (management, labor & customer) each choose regarding Chrysler.

[docpeter-2009]

From the article above, "Germany-based DaimlerChrysler said it would keep a 19.1 percent stake in the renamed Chrysler Holdings LLC. The private company will be run by Cerberus, which said it would keep the present management in place."

I wonder if these people have ever thought that this is the problem and not the blue collars? Pensions and wages of the "workers" is being lost and spent on the "uits" salaries.

It is a shame the unions have lost so much power here and elsewhere.

[coffeehead-2009]

Subliminal brainwashing seems very effective - perhaps the spin on american education is more true than it appears...



Kate Bronfenbrenner of Cornell University has produced the following startling statistics about labor organizing:

Ninety-one percent of employers, when faced with employees who want to join together in a union, force employees to attend closed-door ("captive audience") meetings to hear anti-union propaganda; 80% require supervisors to attend training sessions on how to attack unions; and 79% have supervisors deliver anti-union messages to workers they oversee. The sad fact is, that what passes for anti-union rhetoric is usually a pack of lies designed to frighten workers, and more often than not these tactics are successful.

Eighty percent of employers hire outside consultants to run anti-union campaigns, often based on intimidation and distorting the law.

Half of employers (illegally) threaten to close down if employees join together in a union.

In 31 percent of organizing campaigns, employers illegally fire workers just because they want to form a union.

Even after workers go through all this and win a National Labor Relations Board election to form a union, one-third of the time their employer (illegally) will not negotiate a contract with them.

[mizpah63]

Until 1998 American corporation-built automobiles were parked in our driveway. We owned products from GM, Ford and Chrysler for more than 30 years. Inferior quality, lack of reliability and poor after-the-sale service forced us to go foreign. Since 1998 only Hondas have been in the driveway--reliable, attractive, fuel-efficient and comfortable, Hondas. When American label vehicles can meet or exceed the Japanese label cars that my wife and I are currently driving, I'll give them another look. Lee Iacoca, former Chrysler CEO, starred in an ad in which he told prospective buyers if they could find a better vehicle than a Chrysler product they should buy it; we did! I wonder if Lee's still diving a Chrysler?