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Chrysler Future Hinges On Unions

Thursday, 8 Mar 2007 | 10:36 AM ET

While representatives from two private equity firms meet with Chrysler executives outside Detroit this week, there will be plenty of speculation about what it would take for them to bid on the American automaker.

Forget about the possible price. The real key as to what happens with Chrysler's future with the UAW, it's upcoming contract negotiations, and the hefty legacy costs tied to it's retirees.

Make no mistake, Chrysler is an attractive automaker, especially after it rightsizes it's business by buying out 13,000 (11,000 blue collar) workers over the upcoming months. But whoever buys Chrysler must tackle an estimated $13 billion dollars in legacy costs. And even if a buyer or group of buyers agree to picking up that cost, they will still have the upcoming UAW contract talks facing them.

The private equity suitors (Blackstone Group and Cerberus Capital) won't be scared off by the UAW issues. But they also are likely to want some sense of how succesful they can be in mitigating those issues so Chrysler, if it's bought, can be transformed into a leaner automaker that will bring a healthy return on investment when those investors ultimately take the company public or sell it off, either in pieces or as a whole.

These private equity firms can be very creative in structuring deals. The question is how creative the UAW will be in potentially restructuring it's legacy benefits as well it's upcoming contract. From talking with people in the union and with automakers an Detroit, it's clear the union is ready to talk, but don't expect it to give whoever buys Chrysler a sweet deal. It's membership is shrinking, and UAW president Ron Gettlefinger will fight to give his members, as well as the union retirees, as much as he can.



Questions? Comments? BehindTheWheel@cnbc.com

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  • Phil LeBeau is a CNBC auto and airline industry reporter based in the Chicago bureau and editor of the Behind the Wheel section on CNBC.com.

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