Dana to get cash infusion after union deal
Private equity firm Centerbridge Capital Partners to invest up to $500 million after auto parts manufacturer reaches deals with unions.
NEW YORK (CNNMoney.com) -- Bankrupt auto parts manufacturer Dana Corp. reached labor deals with the United Auto Workers and United Steelworkers unions Friday, which the company said will lead to private equity firm Centerbridge Capital Partners and its affiliates to invest up to $500 million in cash in its operations.
"While there is a good deal of work yet to be done, we are on track to file a reorganization plan by the beginning of September and to emerge from bankruptcy by year end," Dana (Charts, Fortune 500) Chairman and CEO Mike Burns said in a statement.
The deals call for some terms normally opposed by the unions, including establishment of a two-tier wage structure at certain affected U.S. plants, changes in disability benefits, and a freeze on credited service and benefit accruals under the pension plans for active employees represented by the two unions.
But the UAW admitted unions had limited leverage under the bankruptcy court laws, and they said they were pleased by the investment in the company agreed to as part of the deals.
Dana has been operating under bankruptcy protections since March 3, 2006. Its core products include axles and driveshafts for the Big Three automakers as well as heavy truck manufacturers.
"These were long and difficult negotiations when many times our efforts were hindered by very anti-worker bankruptcy laws and procedures," said UAW Vice President Bob King, who directed that union's negotiations. "We insisted that the company limit its debt, have minimum liquidity and obtain new cash investment in order to have a chance at a positive future, and Dana agreed to our conditions. We're not interested in a repeat of past mistakes, when the company went from one financial crisis to another."
Earlier this year, UAW President Ron Gettelfinger decried the interest in the auto industry by private equity firms.
"We have equity and hedge funds circling overhead as never before," he said in a speech to union officials in Detroit in March."It is unfortunate, but that many of them are out to increase their wealth by stripping and flipping the companies," he said, adding that apprehension by membership is justified.
But since that speech he's come out in support of the purchase of Chrysler Group from German automaker DaimlerChrysler by private equity firm Cerberus Capital Management. And he endorsed the involvement of Centerbridge in this deal.
"This settlement would not have been possible without the involvement of Centerbridge Partners," he said in the statement. "They're going to play a key role in the future of Dana, and we look forward to working with them to help this company succeed in the marketplace."
The tentative deal, which still faces a ratification vote by rank and file workers, comes on the heels of a new concession labor pact at bankrupt auto parts maker Delphi (Charts, Fortune 500), the former General Motors (Charts, Fortune 500) unit that has been in bankruptcy since Oct. 8, 2005.
The deals come ahead of even more crucial labor talks set to begin soon between the UAW and Chrysler, GM and Ford Motor (Charts, Fortune 500). All three are seeking large labor cost savings to stem losses from their North American operations and compete with nonunion automakers such as Toyota Motor (Charts).