Chrysler workers must choose: ESOPs or workers' control?

Ten weeks have passed since the “St. Valentine’s Day Massacre”—the day in February that DaimlerChrysler (DCX) announced plans to eliminate 13,000 Chrysler jobs in the U.S. and Canada. Ten weeks since DCX CEO Dieter Zetsche, when asked about the possible sale of Chrysler, made the now-famous statement that all options were on the table.

Yet Chrysler workers are no closer to knowing their future.

Workers read every news article they can find on the Internet but there is nothing definite, only speculation by “industry insiders.”

Most ominous is the possible sale of Chrysler to a private equity firm, such as Blackstone or Cerberus, that will “strip and flip” the company. These vultures would buy it on the cheap, force mega-concessions on the union, slash employment, and then sell what’s left to some other investor at a huge profit.

Another possible scenario is that Canadian auto parts supplier Magna will join forces with an equity firm to buy Chrysler. Chrysler already depends on Magna for numerous parts, including stampings for the high-end vehicles assembled in Brampton, Ont. Magna operates a former Chrysler assembly plant in Graz, Austria, building Chrysler vehicles for the European market. Workers anticipate that Magna would demand huge wage and benefit concessions from the unionized Chrysler workforce.

In the midst of all this turmoil, a group of employees in Toledo has offered an alternative. They have proposed an Employee Stock Ownership Plan—ESOP—in which Chrysler workers would trade concessions in health benefits for a 70-percent “ownership” of company stock. This proposal has been sent to DaimlerChrysler and the UAW leadership. It has not been rejected.

Daimler bought Chrysler for $36 billion in 1998. Its current market value is estimated at less than $8 billion. Tracinda, a private equity fund owned by Kirk Kerkorian, a buyout Las Vegas speculator, is offering $4.5 billion along with a form of ESOP. Other buyout suitors are contemplating their own form of ESOP to maximize their profit, reduce risk, and offer pseudo ownership to the union.

It’s not hard to understand why workers might find an ESOP attractive. Workers are very scared about their future. Many fearful union members have taken the Voluntary Termination Employment Program buyout—a one-time payment of $100,000, with six months of health care coverage but no unemployment benefits and a stipulation that the worker can never reapply for employment at Chrysler.

Others are retiring with a $70,000 lump sum on top of their negotiated pensions. They have been forced to make these irrevocable decisions by April 16, in the dark, with no concrete information on their future.

For the company to put workers in this position is criminal.

Only under much pressure and the cloud of uncertainty would workers consider gambling away their health care for a dubious “piece of the rock.” However, a careful examination of the historical and current impact of ESOPs should convince Chrysler workers to reject pseudo-ownership.

The ESOP concept actually goes back to the 1920s, with the setting up of “labor banks.” The formulation died out when the 1929 stock market crash wiped out any stake, real or imagined, that workers had in the companies they worked for.

In the 1980s recession these failed investment schemes were repackaged as ESOPs. Workers World Party Chairperson Sam Marcy exposed the flaws inherent in ESOPs in his book “High Tech, Low Pay”:

“The purpose of any and all stockholding schemes is to tie the workers down to management’s fundamental interests, to win loyalty to the company as against their own interests ...

“The way these things work is as follows: A company suddenly demands huge concessions from the workers, claiming bad business conditions. Layoffs are threatened and finally management seemingly throws up its hands and says the company is on the brink of failure. It suggests that the workers should now become the owners of the plant as a result of accepting an Employee Stock Ownership Plan. ...

“What happens then? The company often claims that it’s got a cash-flow crisis and proceeds to get a bank loan. Banks, which are usually reluctant to advance money to companies in danger, are eager in the case of ESOPs. That’s because they get special privileges and can write off as much as 50 percent of the interest as well as the loan, and other complicated privileges. The bank passes the money to ESOP. Then ESOP passes the loan to the company.

“The company in return issues the stock to ESOP and it is then held in trust for the workers, but is not given to them directly. It is held in their account.

“There are cases where, as a result of threats of shutdown and bankruptcy, union or non-union workers have accepted very far-reaching concessions resulting in steep cuts in wages and benefits in exchange for two or three directors. This happened in the airline industry at Eastern and TWA, which used the strikebreaking pushed through by Continental Airlines as a weapon of intimidation. ...

“The entire experience of ESOPs, and there are a great many varieties of them, is that they not only leave the workers with a lowered income but are attempts to tie the workers securely to the chariot wheels of class collaboration.”

Decades later, the experience of workers at United Airlines confirmed the accuracy and foresight of Marcy’s analysis. (See accompanying United Airlines article.)

On the recently approved ESOP for the Tribune Co., Sam Zell, a billionaire real estate speculator/investor, will claim ownership (40 percent) putting up only $315 million for the $8.2 billion buyout from the Chandler family. The $8.2 billion buyout will be run through an ESOP (60 percent), using borrowed money, including Tribune debt of $13 billion.

The company will be called the “New Tribune” and “management will have ‘phantom’ stock, not real stock. It will get the economic benefit of ownership, but not actual ownership, and thus will avoid tax liability on New Tribune’s income. Zell’s warrant ... gives him 40 percent of New Tribune, but he won’t owe taxes on his 40 percent of the company’s income because he will not own any of its stock.” (Washington Post, May 1)

Through financial manipulations, Zell will own the company without owning stock. But the workers through ESOP own 60 percent of the stock and should be entitled to run the company under workers’ control. This would enable them to make all decisions regarding operations and control.

“It should be stated that workers’ control in the present state of the working-class movement is merely a demand within the capitalist system, but it has the possibility of overturning the capital-labor relationship at a time when strikes are more difficult to carry out. Unlike ESOPs, workers’ control does not place financial control in the hands of a bogus group of management-appointed or bank-controlled supervisors, who in effect, make decisions without any vote by the workers.” (Marcy, “High Tech, Low Pay”)

These comments ought to be seen by class-conscious workers as further proof, if any was needed, that workers’ control as a transitional demand, will guarantee benefits.

Labor leaders representing U.S., Canadian and German DCX workers who sit on the DCX Board of Supervisors have all spoken out against the sale of Chrysler. Officially they favor Chrysler remaining under the DaimlerChrysler umbrella.

The UAW has yet to come out with a clear position rejecting ESOPs. Could this disastrous proposal be redirected, toward workers’ control? It will be up to the rank and file to develop this strategy for UAW negotiations with the Big Three this year.

Now is the time to make a clean break with the failed concept of labor-management cooperation and launch a struggle for workers’ control in an industry-wide fightback to save jobs, benefits, pay and pensions.

Grevatt is a Chrysler worker. E-mail: [email protected].