Wednesday, October 12, 2011

Fiat-Chrysler Strikes Deal With UAW Over Compensation

The poor/sick bastard child of Detroit, Chrysler, which is majority owned by Italian carmaker Fiat, has apparently struck a deal with the United Auto Workers union. It's not nearly as beneficial to workers as similar deals struck between the union and GM, let alone Ford, but it ends months of acrimonious negotiations.
The union said Chrysler, which went through bankruptcy protection in 2009, also committed to investing $4.5 billion to retool plants for new models. It planned to lay out more details of the proposed contract, which covers 26,000 workers, at a news conference later Wednesday.

“This agreement is the latest in a remarkable turnaround for Chrysler,” General Holiefield, the U.A.W. vice president in charge of negotiations with Chrysler, said in a statement. “Chrysler has turned the corner and with this agreement will continue to move forward. It’s a new day at Chrysler.”

Chrysler, the smallest of the three Detroit automakers, was the last to reach a deal with the U.A.W. Negotiations there were the most difficult, as Chrysler executives took a hard line against any increase in labor costs.

The union last month ratified a new contract with General Motors that creates or retains 6,400 jobs. Workers at the Ford Motor Company began voting this week on a tentative agreement, reached Oct. 4, that adds 12,000 jobs. Both deals follow the same basic framework, giving workers signing bonuses of at least $5,000, raising entry-level wages and moving work from other countries, including Mexico, to American plants.

“Together with the jobs created in suppliers and other businesses supported by auto manufacturing, a total of 180,000 jobs will be added to the country’s battered economy” if the Ford and Chrysler agreements are approved, U.A.W. President Bob King said in the statement. The 180,000 includes the new G.M. jobs.

G.M. has said its new contract increases labor costs by just 1 percent annually, an amount that prompted Standard & Poor’s to upgrade G.M.’s credit rating. Ford and Chrysler were waiting until their deals are ratified before discussing them in more detail.

Chrysler’s chief executive, Sergio Marchionne, last week described the G.M. and Ford deals as “overly generous.” Chrysler was the only one of the Detroit companies to lose money in 2010 — $652 million — but it has since repaid $7.5 billion in high-interest government loans that were its largest hindrance to profitability.
It repaid those loans by taking out still other loans (it refinanced its debt). The debt is still there, but not nearly as expensive on a monthly balance sheet as it was a year ago. The company has yet to make a profit with the new ownership in place, but a new and improved product line may help - if the public shows any interest in the Fiat products being rolled out that is.

It calls on the company to make $4.5 billion in investments and to add 2,100 jobs in the United States.

It's also expected to include a profit-sharing component, but I find that last part laughable considering that Chrysler has been losing money for years on end, which is why the company needed a bailout in the first place. I understand that the union was trying to get the company to be more receptive to worker needs, but the union also helped put Chrysler in the position it is in by saddling the company with among the highest benefit obligations in the industry per capita.

The company hasn't helped itself by proffering cars that are awful; poor quality and poor performance despite having some of the best looking vehicles on the market. One has to hope that the public takes a liking to the Fiat offerings and that Chrysler's product mix improves significantly on performance and quality. Consumer Reports recently the new Chrysler 300 to be the highest rated Chrysler product it ever tested, but it still falls well short of the best in class (and has the worst fuel economy among those in its class). It's an improvement, but is it enough? I don't think it will be.

Seems that Chrysler's problems with fuel economy are downright abhorrent. As a brand, Chrysler ranks dead last with CAFE mileage of a measly 19.2 mpg. Hyundai (Hyundai!?) is tops at 26.7 mpg. If customers are looking for fuel efficient cars, the last place they should be looking is Chrysler - not exactly a sign of improvement in business fortunes.

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