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Chrysler, UAW Launch Critical Contract Talks for Auto Industry

Chrysler Group and the United Auto Workers union on Friday mark the formal start of a summer of crucial contract negotiations under intense pressure to break the model of business as usual for Detroit.

Chrysler, which is being spun off by German parent DaimlerChrysler

in a $7.4-billion deal, was the first of the three U.S. automakers to reach a deal with the UAW during the last round of labor talks in 2003.

On Friday, in a choreographed photo opportunity, Chrysler Chief Executive Tom LaSorda will shake hands with UAW President Ron Gettelfinger at Chrysler's Auburn Hills, Michigan headquarters and usher in a period of both deep uncertainty and heightened expectations for the U.S. auto industry.

Chrysler and larger rivals Ford Motor and General Motors

say they need a game-changing deal with the UAW this summer to keep production in the United States and avoid adding to the roughly 80,000 factory jobs they have cut over the past two years.

The union and Chrysler have already been in negotiations over retiree health care costs that were initially aimed at giving Chrysler a cost-saving deal of the kind the UAW granted Ford and GM because of their own deteriorating finances.

Chrysler, which lost $1.4 billion in 2006, has said it needs sweeping concessions from the UAW to eliminate a cost gap with more efficient Japanese rivals.

On the cusp of its acquisition by Cerberus Capital Management, Chrysler's hourly labor costs are an industry-leading $75.86, higher than GM at $73.26 or Ford at $70.51, according to data compiled by the automaker.

Chrysler also pays its 26,000 UAW-represented workers over $30 per hour more than Japan's own Big Three -- Toyota Motor, Honda Motor and Nissan Motor-- pay their American workers.

Much of that gap represents the cost of higher pensions and retiree health care costs, issues expected to be at the center of negotiations to replace the current four-year deal expiring at midnight on September 14.

UAW President Ron Gettelfinger, considered a pragmatic negotiator, has said he is not heading into the summer of talks in a "concessionary mode."

But many analysts expect the UAW to consider establishing a union-aligned trust fund for retiree health care, if it can reach agreement with the automakers on how fully to fund it.

Such a move, which would follow a model established by Goodyear Tire and Rubber, could shift billions in annual costs from the automakers and protect unionized workers against the risk of losing benefits in any future bankruptcy.

Cerberus Chairman John Snow said last week that Chrysler's current leadership team under LaSorda will lead negotiations, but he made clear that the stakes were high.

"Finding answers to close the competitive gaps are crucial to the U.S. auto industry," he told reporters. "If it's going to survive and prosper, we need to close the gap. That's for sure."

Ceremonial handshakes between Gettelfinger and executives to mark the start of contract talks at GM and Ford are scheduled for Monday.

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