Chrysler strike could be a long one

Roland Jones Business news editor • Profile • E-mail

There was a feeling of déjà vu in Detroit Wednesday, as unionized workers walked off car production lines and out of warehouses in a nationwide strike against Chrysler after a union-imposed deadline passed without a new contract agreement.

Just over two weeks ago, the United Auto Workers union ordered 73,000 workers to walk out at General Motors after a similar deadline passed. But while GM strike lasted only two days, a strike could unfold differently at Chrysler, observers say.

While the issues in the strike are broadly similar to the GM case, Chrysler is not under the same pressure to settle, in part because it has become a privately held company and does not have to answer to public shareholders as GM and Ford do, noted Aaron Bragman, senior automotive analyst at consultancy Global Insight.

In August, Germany's DaimlerChrysler AG completed the sale of 80.1 percent of Chrysler to private equity firm Cerberus Capital Management LP — a factor that could mean the strike at Chrysler is dramatically different to the walkout at GM, Bragman said.

“There are no big institutional shareholders pressuring management and saying, ‘Hey, we need to come to a settlement soon because the share price is going down and we are losing value,’” Bragman told CNBC. “So Cerberus and Chrysler could potentially hold out for quite a bit longer than a public company.”

The issues at stake in the Chrysler talks are similar to those between the union and GM. While the automaker wants to reduce the nearly $20 billion it pays for active workers, retirees and their families’ health care — which U.S. automakers say add some $1,500 to the cost of building each car — the UAW wants to preserve much of those benefits and wants Chrysler to also guarantee that certain new products will be built at UAW-staffed factories.

But those guarantees may be hard to squeeze out of Chrysler’s new owner Cerberus, which is looking to put in place a more competitive structure at Chrysler. The automaker pays some of the highest wages in the automotive industry, and Cerberus has a track record of investing in troubled companies with a view to making them more profitable, so it may take a more aggressive stance with the union Bragman noted

“Chrysler may not be in a position to deliver,” Bragman said. “To get a GM-style set of guarantees they would have to be fully engaged in their product plan like GM, but Chrysler isn’t there yet, so they are probably unable to offer job security, to commit to building product X in plant Y at a certain date, because they may not know what their product plan is going to be.”

Chrysler’s negotiations with the UAW may also be more acrimonious, observers say, because Chrysler didn’t get the health care concessions gave to GM and Ford in 2005 that reportedly were worth some $340 million a year. Back then, the automaker was the U.S. division of DaimlerChrysler and was thought to be in good financial shape compared with GM and Ford.

Today, Chrysler’s financial footing looks less secure. The automaker is down to fourth place in  U.S. market share and has seen sales decline 2.7 percent this year. Wednesday’s strike, which has seen some 49,000 UAW members put down tools at 17 of the company’s 22 plants, is expected to cost the automaker some $50 million a day. It is the first UAW strike against Chrysler in a decade.

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