Chrysler wins union concessions

UAW says it reaches agreement on modifications in collective bargaining accord needed to keep automaker out of bankruptcy.

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NEW YORK (CNNMoney.com) -- The United Auto Workers announced Sunday that it has reached a tentative agreement on concessions in its contract with Chrysler LLC - a key step in final efforts to help the automaker avoid bankruptcy.

The union, in a statement, said the agreement was reached with Chrysler, Fiat and the Treasury Department. It said the deal includes modifications to the union's 2007 collective bargaining agreement and the trust program dedicated to retiree health benefits. The UAW did not specify those concessions.

"We commend the UAW's leadership for their endless determination and perseverance in reaching this tentative agreement especially during these unprecedented economic circumstances that plague the automotive industry," Al Iacobelli, Chrysler's chief labor negotiator and vice president of employee relations, said in a statement.

Chrysler still needs to reach two critical deals to avoid bankruptcy.

It must reach an agreement with Italian automaker Fiat. The Treasury Department's auto industry task force has said Chrysler is not viable on a stand-alone basis.

Chrysler also needs to have banks forgive much of their $7 billion in loans to the automaker secured by its assets, such as plants and equipment, in return for accepting an equity stake in the new Chrysler.

But it was unlikely that either a deal with Fiat or the lenders could have been reached without the union agreeing to cost-cutting moves.

Fiat's CEO said earlier this month that he wasn't interested in an alliance with Chrysler unless there was a deal with the union, and the lenders reportedly would rather let the company go bankrupt and collect what they can from liquidation than agree to swap their debt for equity if there wasn't a cost-cutting deal first.

No guarantees: However, Sunday's deal does not guarantee that Chrysler will be able to avoid bankruptcy. It still needs to be ratified by the rank-and-file union members at Chrysler, a vote due to happen by Wednesday. That's a much faster vote than is typical in union agreements, especially those asking for concessions from membership.

And even with the union deal, it is not clear that agreements will be finalized with both Fiat and the lenders. All three deals need to be reached by Thursday's deadline if a bankruptcy is to be avoided.

Bankruptcy could lead to the eventual closure and liquidation of the 84-year old automaker that includes the Chrysler, Dodge and Jeep brands.

The attempts to keep the company out of bankruptcy come as the entire auto industry suffers from its worst U.S. sales in more than 26 years. Chrysler's sales in the first three months of this year were off nearly 46% from year-ago levels, while industry wide sales fell 38%.

Forecasts are that April sales, due to be released Friday, will also be very weak, with few forecasts of sales picking up significantly until late this year at the earliest.

With these weak U.S. sales, just about every automaker, including relatively healthy companies such as Toyota Motor (TM), have been losing money.

Terms to be announced: Details of the agreement were not announced Sunday, with union leadership saying they will be presented first to its membership. But the union said it met the demands laid out under terms of the $4 billion loan package that Chrysler received from Treasury in December.

That loan package called for the union to agree to a wage-and-benefit package that is comparable to what is paid hourly workers at the North American auto plants of Asian automakers, such as Toyota and Honda Motor (HMC).

Chrysler and the other two major U.S. automakers - General Motors (GM, Fortune 500) and Ford Motor (F, Fortune 500) - all reached deals with the UAW in 2008 that eliminated much of the difference in labor costs with the nonunion Asian automakers' plants.

The deal called for them to shift responsibility for retiree health care, by far the greatest gap between the U.S. and Asian plants, to union-controlled trust funds. The automakers were due to contribute billions to those trust funds to get them started.

The deal also called for a two-tier wage system that paid new hires significantly less money than current autoworkers, and did not give the new hires expensive benefits such as pensions and retiree health care. But the automakers have not been able to take much advantage of the lower wage package so far because of the need to cut staff and production in the face of the current industry downturn.

It also called for the union to accept equity in the company for at least half the contribution due to trust funds being set up to pay for retiree's health care coverage going forward. The loan also required the union to give up guaranteed pay that traditionally had been given to UAW members laid off from one of the three major U.S. automakers.

It's not clear if autoworkers at Chrysler will see a reduction in their base hourly wages under terms of this agreement. But they are likely to see reductions in benefits, such as having to contribute more to their insurance premiums and health care costs, and reduced retirement benefits.

"We recognize this has been a long ordeal for active and retired auto workers, and a time of great uncertainty," said UAW President Ron Gettelfinger in the union statement. "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."

Over the weekend, Canadian Auto Workers ratified an agreement that would, among other things, cut wages and bonuses and eliminate the employee pricing for vehicles. The union said 87% of its members voted for the agreement, which would save Chrysler nearly $200 million a year.

Consequences: Chrysler is only a fraction of its former self -- it has about 39,000 U.S. employees, only about 40% of the total it had at the beginning of the decade. It has fallen behind not only Toyota in sales, but it is close to being overtaken by Honda for the No. 4 spot for U.S. sales.

But a bankruptcy and closure at Chrysler would cause problems throughout the industry. It owes its suppliers about $7 billion, a total that could cause widespread bankruptcy and closures throughout the auto parts industry and could shut down production lines of most other automakers with North American plants.

It also would cause job losses at 3,300 dealerships and cost the economy an estimated $150 billion in household incomes within three years.

"People thought Lehman Brothers going out of business wouldn't have that big an impact on the economy," said independent auto consultant Erich Merkle earlier this month, referring to the Wall Street firm whose collapse triggered the problems in the credit and financial markets during the past seven months. "Chrysler could be the Lehman Brothers of the auto industry."

-- Reuters contributed to this report To top of page

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