UAW/Chrysler: How 55% = 0% (D. Henwood)

by Chris Sturr | May 07, 2009

From Doug Henwood’s blog, on the whole Chrysler/UAW/VEBA thing:

A friend sent me a copy of a brochure (click here for a copy) that the UAW is circulating to its Chrysler workers, or those of them that remain, offering details on the proposed deal with Fiat and the U.S. government. The pay and benefit cuts are nasty, but hardly a surprise. What is a surprise is that the UAW’s equity stake is even less impressive a thing than it seemed on first glance. And the first glance wasn’t all that impressive to start with.

Before proceeding, a reminder: the stock would not be owned directly by the union, but by a trust established to pay medical benefits to retirees. That already puts a layer of distance between the union and the company (with the union already serving as a layer of distance between the workers and the company). Even with that in mind, the terms of the deal suck out loud.

Two points.

  • Chrysler stock hasn’t traded publicly since Daimler took it over in 1998. Cerberus, a private equity firm, bought 80% of Daimler’s stake in 2007, keeping the stock in private hands. But should Chrysler recover and offer its stock to the public, and should that stock appreciate in value, and should the UAW ever choose to sell those shares for cash, it would have to turn any amount in excess of $4.25 billion to the U.S. government. The terms of the Cerberus deal valued the firm at $9.25 billion just two years ago. Obviously that was an inflated price, but it does give some idea of what a recovered Chrysler might be worth. At that level, the VEBA’s 55% stake would be worth $5.1 billion. So, basically the VEBA would be denied any serious participation in Chrysler’s recovery.
  • So instead of looking to make a buck, might the UAW be able to exercise some control over the company for the longer term? Ha, of course not. As I’ve already pointed out here, the VEBA’s 55% stake in the firm would give it just one seat on the nine-member board, the same as the government of Canada, which would have a 2% stake. And, in a particularly lovely touch (quoting the brochure), “the VEBA will be required to vote its Chrysler shares in accordance with the direction of the Independent Directors on Chrysler Board [sic].”

A headline on this section of the UAW brochure reads, “New funding structure aids company viability.” And the governance structure—assuming the bankruptcy court goes along with it—gives management a blank check, despite more than half the shares being held in the name of the workers. Ah, pension-fund socialism.

LBO News asked one of the VEBA trustees how they ended up with such a stinky deal. The answer: “Negotiation.”

(This is the full post.)

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  1. Bravo to you, Doug, on reporting the facts of the matter instead of parroting what I first heard from Druggie Rush on the day I left the union hall where union leadership pitched this abomination to us as a “necessary evil.” The inability of the press, including the NYT, to shrug off this “UAW owns majority share of new Chrysler Corp” BS is astounding. It took half a week before the AP finally issued a story on a Saturday following the contract ratification vote to debunk this crap but their subsequent stories continued to refer to the UAW “ownership” of Chrysler. Gettelfinger finally issued a statement to try to clear this all up and included much of what you point out in your post. You may want to know that we were told in that same brochure that the current $1.5 billion that is in the internal VEBA trust that will be transferred to the UAW VEBA to pay for retriree health care will be used up by the end of 2009 except for the concessions in health coverage that retirees were forced to make in this contract. The first payment on the $4.5 billion promissory note, the other half of the $9 billion that the trust will eventually receive if the stock value goes up, is due in 2010 but is only $300 million. If retiree health care costs are in excess of $1.5 billion for just three quarters of 2009 and there will be many more retirees after the current round of retirement incentive packages, how can the VEBA stay solvent long enough for the new Chrysler stock to reach even a fraction of the projected $4.25 billion? Experts are predicting the VEBA to be insolven inside of six years. My prediciton is that it won’t last more than two years, and then only if retiree health care is slashed in 2010 not by Chrysler but by the UAW itself. What a PR coup for the corporation. We didn’t cut your health care, your union did it. BTW, did you happen to notice that the contract includes binding arbitration as the only way to resolve issues at the end of the current term so that we are effectively locked in to this contract in perpetuity with no right to strike or vote on new terms? In addition, the issue of “all-in” wages is required by contract to be resolved by the arbitrator in accordance with the existing North American industrial average wage and benefits of the non-union offshore transplant manufacturers. The once-mighty UAW has officially ceded leadership in setting wage and benefit standards to the non-union industry and has effectively given a green light to Toyota, Hyundai, et al to go ahead and further slash wage and benefit packages for their employees. Some “negotiation,” huh? I really admire your work. Yours truly,
    Robert Glassman UAW local 869 Member, Chrysler Warren Stamping Plant, Michigan

  2. Personally none of this surprises me. I had 2 generations of my family as UAW Dodge/Chrysler & GM employee’s and they made out like bandits. I have to hear my uncle bitch about this deal as one of the retired folk. It’s a crappy deal for the unions for a reason and its time for them to pay the piper after screwing the company, and the public who purchased Chrysler products, for so many years. The unions, like Congress, applied no fiscal constraints and used little or no good judgment. Now we have to wonder if there will be a company left, and if so how much? I am sure FIAT, with it’s own union problems and debt, will just make it worse. The Chinese curse of “May you live in interesting times, is coming true in a big way.

    Do I feel bad for the retiree’s. Sure I do, but to bad for the ones that spent like drunken sailors rather than plan better for their own retirement and health expenses. How foolish do you have to be to believe a union rep speaking about that your benefits are covered. Of the 17 retired Chrysler assembly family members around me, only 3 are secure and the rest are quickly becoming family responsibilities, or should I say liabilities. So much for the greatest generation, uh.. stupidest generation, on the issue of personal responsibility.

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