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Chrysler strikes deals with unions

April 27, 2009|Ken Bensinger and Peter Pae

Chrysler cleared a major hurdle in its bid to stave off bankruptcy by reaching key labor deals Sunday with its unions in the U.S. and Canada.

A tentative pact with the United Auto Workers -- details were undisclosed -- came just hours after membership of the Canadian Auto Workers union ratified a deal late Sunday that could save Chrysler close to $200 million a year.

The deals came just days before an Obama administration-imposed deadline for the troubled automaker to gain concessions from unions, renegotiate $6.9 billion in debt and form an alliance with Italian automaker Fiat.

If Chrysler, which has received $4 billion in federal loans, does not satisfy the requirements of the Treasury Department's autos task force by midnight Thursday, it faces the prospect of being cut off from further federal aid and the likelihood of going into bankruptcy.

Because of dramatic declines in sales and a potentially inviable financial and operating structure, Chrysler can continue only if it allies itself with another automaker, according to the administration. Fiat's chief executive, Sergio Marchionne, has said he would not make such a deal without Chrysler forging new union contracts to reduce costs for labor and retiree healthcare.

Sunday's UAW agreement "provides the framework needed to ensure manufacturing competitiveness and helps to meet the guidelines set forth by the U.S. Treasury Department," said Al Iacobelli, the chief bargainer for Chrysler. "As a result, Chrysler LLC can continue to pursue a partnership with Fiat."

Chrysler has been struggling to come to such an agreement for weeks in the face of resistance from union members, who argue that they already have made more significant concessions than such other stakeholders as the banks that are the primary holders of Chrysler's debt.

But in the face of a potential bankruptcy, it was the unions that stood to lose the most.

"The patience, resolve and determination of UAW members in these difficult times is extraordinary and has made it possible for us to reach the agreement we will present to our membership," UAW President Ron Gettelfinger said Sunday.

Details of the UAW pact were not made available because it has not been ratified. A vote among the union's 26,000 Chrysler employees is expected by Wednesday. The pact with the CAW was ratified by 87% of the union's 8,000 members Sunday, the union said.

"The high acceptance of this agreement is a recognition that although workers did not cause this crisis, we all have an interest in maintaining good jobs and ensuring the auto industry remains central to the overall Canadian economy," said CAW President Ken Lewenza.

The new Canadian pact reduces benefits and time off for workers and establishes a trust to cover the costs of retiree healthcare.

Cash obligations to a similar trust created in 2007 by the UAW with Chrysler, General Motors Corp. and Ford Motor Co. have been a major sticking point for Chrysler and GM as they try to restructure.

Chrysler owes roughly $10.6 billion in cash to the trust, and GM owes $20 billion; both have been asked by the administration to swap equity for half of those amounts.

At the same time, Chrysler, aided by the Treasury Department, has been bargaining with debt holders, including JPMorgan Chase, to forgive $6.9 billion in secured debt.

On Friday, the Treasury suggested a deal that would offer the creditors a 5% stake in Chrysler in exchange for forgiving $5.4 billion in loans. That's far below proposals by the lenders, which would give it up to 40% equity in Chrysler and require Fiat to make cash investments in the automaker in the event of a merger.

Fiat's Marchionne, however, has repeatedly insisted his company would not contribute cash to the deal. Instead, the Italian concern plans to give Chrysler access to its engine technology and platforms for the small, fuel-efficient vehicles that it specializes in.

The administration has said it would lend Chrysler an additional $6 billion in the event a deal is cemented to its satisfaction. But if such an arrangement is not made, it said it would cut off Chrysler completely.

GM has been given until June 1 to cut similar deals with the UAW and its creditors, which hold more than $27 billion in unsecured debt in the company.

Any deals ratified by the unions with Chrysler are expected to be taken up by GM and Ford as well.

GM, which has received $15.4 billion in federal money, said it would provide details today on the progress it has made in its own restructuring efforts. Those details are expected to include information on factory closings, exchanges of equity for some of its $27 billion in debt and the possible closing or sale of its storied Pontiac brand.

--

ken.bensinger@latimes.com

peter.pae@latimes.com

Times staff writer Jim Puzzanghera contributed to this report.

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