Wall St. sharks buy Chrysler

For auto workers, every day the news headlines paint a picture more ominous than the day before. On Friday, May 11, Chrysler’s sale to Canadian auto parts company Magna appeared imminent. Bad news got worse on Saturday, with stories that it was not Magna but the private equity firm Cerberus that would likely buy Chrysler. By Sunday night it was front-page news: Cerberus and DaimlerChrysler (DCX) had struck a deal.

The sale was confirmed by a DCX press release Monday morning. The sale will create a new Chrysler Holding Co. Cerberus will acquire an 80.1 percent stake in Chrysler for the bargain-basement price of $7.4 billion while Daimler will retain a minority share. In a complicated and confusing arrangement, Daimler will actually pay out $650 million to complete the sale.

The news sent DCX stock prices soaring. Why? The stockholders’ delirium stems from the fact that they will be relieved of all health care and pension obligations—some $70 billion—to the Chrysler workers.

Sharing in the glee are Chrysler CEO Tom LaSorda; Daimler CEO Dieter Zetsche; Cerberus CEO Steven Feinberg; Cerberus Chairperson John Snow, who is also a former secretary of the U.S. Treasury; Cerberus bigwigs, including former Ford executives David Thursfield and Kenneth Leet, who are also formerly with the Goldman Sachs investment bank; former Vice President Dan Quayle; and the advisor in the deal to both Daimler and Cerberus: JP Morgan Chase.

For a vulture capitalist like Cerberus to buy an entire automotive manufacturer is unprecedented and represents an alarming and dangerous development for the United Auto Workers—indeed, for the entire labor movement.

Private equity firms like Cerberus and its rival Blackstone have one agenda: buy “distressed” companies, shed workers, force concessions, and sell the now-profitable company for many times what they paid for it. As the bankruptcy of Delphi, an auto parts maker spun off by General Motors, has already demonstrated, the workers are the big losers in these transactions.

What makes this deal dangerous is the huge amount of debt the new Chrysler Holding Co. is assuming. By freeing Daimler of all its pension and health care obligations, the new entity will take on some $20 billion in annual debt. Moreover, the deal itself is a leveraged buyout. Cerberus investors on Wall Street will surely demand that Chrysler become debt-free fast—on the backs of the workers.

Adding to the danger is the secrecy under which these shadowy firms operate. The complete lack of transparency is the trademark of hedge funds, which go largely unregulated. An April 15 article on Cerberus in the Detroit Free Press explains: “Critics and competitors say secrecy is imperative to success in the takeover business. ... Private equity is by definition private. Its investors don’t have to publicize plans; they aren’t beholden to public shareholders.”

Even the name Cerberus is menacing. Cerberus was the name of the multi-headed dog in Greek mythology that guarded the gates to the underworld. The company’s own top dog, Feinberg, rebuffs suggestions that the name be changed to put forward a softer image. With an estimated annual salary of $75 million, Feinberg apparently regards the mythical beast as a good-luck mascot.

While he originally opposed the deal, UAW President Ron Gettelfinger has now accepted it and even put a positive spin on it. In a brief news release, he stated, “In an in-depth private meeting with Dr. Dieter Zetsche, Chairman of the Board of Management of DaimlerChrysler AG, and Tom LaSorda, President and CEO of the Chrysler Group, in Stuttgart, it was explained that the status quo for the Chrysler Group was no longer an option. ... After a thorough review, [UAW Vice President] General Holiefield and I concluded that the transaction with Cerberus is in the best interest of our membership, the Chrysler Group and Daimler.”

Gettelfinger should know better than to put stock in good faith assurances from Cerberus. This same company is supposedly withdrawing from the purchase of Delphi because the UAW would not agree to huge concessions. The UAW is holding strike preparation meetings with Delphi locals, charging that the company demanded major givebacks, including incredible pay cuts of over 50 percent.

How can Gettelfinger advance the absurd notion that this same Cerberus is union-friendly when it comes to Chrysler?

Why should the union be concerned with what is best for Chrysler, let alone Daimler? Do the companies make it their concern what’s in the best interest of the UAW membership?

Even if Snow keeps his word, the deal cements the cuts announced by DaimlerChrysler in February of 13,000 jobs in the U.S. and Canada.

Less conciliatory was Canadian Auto Workers President Buzz Hargrove, who demanded a written guarantee from Chrysler CEO Tom LaSorda that there will be no further layoffs in Canada beyond the 2,000 announced last February. After receiving a written letter allaying his concerns, he too got on board.

Early indications suggest the rank and file, while still confused, do not support the deal. An online poll by the Detroit News, which undoubtedly included many autoworkers, showed 72 percent opposed the Cerberus takeover. Online comments from workers suggest the same. Here’s a sample:

“It’s a shame people forget what others fought for. Most people in our country would be subjected to sub-standard living if it hadn’t been for unions.”

“What percent of jobs will be eliminated as this buyout progresses?”

“They sell us to these SOBs who will strip away what we worked for.”

“When will the people here, the haters, realize unions are not [responsible for] all the ‘legacy costs’ but rather, all employees that retire. That includes the higher up executives. You know, the ones that put in all those 6 to 10 years and walk away with millions of dollars. That is where the biggest part of Legacy Costs are found. An equity corporation may not know the first thing about an assembly line, but they sure know how to assemble and restructure pension funds, benefits, all else profitable within the employee benefit package.”

Chrysler workers are not the only ones anxious and angry. The top news story here recently was the announcement by Ford that it would close the Cleveland Casting plant, eliminating 1,300 jobs, and would idle an adjacent engine plant for a year, affecting 700 additional workers. This will leave only 700 working at the Brookpark complex, which once employed over 14,000.

Not only that, Ford announced that it was getting out of the foundry business altogether. This move comes on top of Ford’s plans to discard 30,000 workers, while infuriating the unionized workforce by rewarding CEO Alan Mulally with $39 million in compensation.

Meanwhile, GM and Delphi have not retreated from their offensive strategy to cuts tens of thousands of jobs. Lavish executive bonuses are the pattern there as well.

Negotiations officially begin this summer and contracts with the Big Three expire in September; the sale of Chrysler is supposed to be concluded at summer’s end. Cerberus/Chrysler will demand heavy concessions from the UAW in pay, health care, job security and pensions. If Chrysler gets what it wants, GM/Delphi and Ford will say they need the same to remain competitive.

If the Big Three can do away with defined benefit pensions, which are the only true guarantee of economic security for retirees, it will set the UAW and the whole labor movement back decades.

For too long labor leaders have tied the fortunes of their members to the fortunes of capital. The sale of Chrysler to Cerberus sends a painful but clear message: the illusion of teamwork is history. Labor has reached a critical point and it’s time to get off the treadmill of class collaboration and get on the road to class consciousness.

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