Strike 2: UAW shuts down Chrysler
More than 32,000 workers start second nationwide auto strike in less than two weeks, this time hitting No. 4 U.S. automaker.
NEW YORK (CNNMoney.com) -- More than 32,000 members of the United Auto Workers union struck Chrysler LLC on Wednesday, after marathon labor talks between the union and the money-losing automaker failed to avert the industry's second strike in two weeks.
The strike affects 18 manufacturing plants and 30 other facilities, spread across 14 states.
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Chrysler had already scheduled five additional assembly plants to be closed this week due to excess inventory. Those facilities, which employ 12,500 hourly workers, are technically not on strike, as their workers continue to draw nearly full pay.
Neither union nor company spokespeople had any immediate comment.
"At this time, no official statement from the UAW has been issued. The company will wait for an official UAW statement before issuing a response," said a brief statement on the company's media site.
One source familiar with the negotiations said talks went right up to the 11 a.m. deadline before ending, and that he knew of no new talks being scheduled.
CNN affiliate WXYZ in the Detroit area showed picket signs going up at the Sterling Heights Assembly Plant in Michigan, while cars started streaming out of the gate just after the 11 a.m. ET strike deadline. About 2,700 workers build the Chrysler Sebring at that plant.
Charles Spencer, president of Local 122 in Twinsburg, Ohio, whose members work at a stamping plant there, said his members had hoped to avoid a strike. But he said by the time the strike started Wednesday morning, they were ready to hit the picket lines.
"I think the closer they got to 11 and we heard nothing, we realized we were going on strike," he said. "We do what we have to do to support the union and the cause. The cause is health care and jobs."
The UAW's lack of formal comment on the strike into the mid-afternoon was unusual. Within two hours of the start of last month's strike at General Motors, UAW President Ron Gettelfinger had held a news conference and discussed the issues in the talks. The negotiators were back at the table within a couple of hours after those statements.
UAW's talks with Chrysler are another matter. At 3:30 p.m. Wednesday, there was still no formal statement about a strike, or a news conference or additional talks scheduled.
Wednesday's action was the first strike at Chrysler since 1985. The union struck Chrysler rival General Motors (Charts, Fortune 500) on Sept. 24, a two-day walkout that concluded with a groundbreaking tentative labor agreement there.
That GM deal will shift the responsibility for an estimated $51 billion in retiree health care costs from the company to a union-controlled pension fund, but which gave the union job guarantees in the form of promises to build future GM vehicles at U.S. plants. The 73,000 UAW members at GM are set to conclude a ratification vote on that deal Wednesday.
Chrysler, which makes the Chrysler, Dodge and Jeep brands, was bought by U.S. private equity group Cerberus Capital Management from German automaker Daimler (Charts) in a deal that closed in August. Daimler essentially paid Cerberus to take the automaker, which fell to No. 4 in U.S. sales behind Toyota Motor (Charts) in 2006, in an effort to get out from under a $1.5 billion loss from last year, along with continued obligations to union members and retirees.
Chrysler is seeking to get out from under its own estimated $18 billion in retiree health care costs, and the union had sought to use the GM deal as the pattern for a deal at Chrysler. It also hopes to eventually reach a similar deal with Ford Motor (Charts, Fortune 500), which waits in the wings for the conclusion of negotiations at Chrysler.
But talks between Chrysler and UAW leadership that went from early Tuesday morning virtually non-stop up to the 11 a.m. deadline Wednesday apparently left the two sides too far apart to avert the strike.
Erich Merkle, director of forecasting for automotive consulting firm IRN Inc., said this strike could stretch on much longer than the two-day walkout at GM. He said that long strikes typically take place when one side or both misjudge the other.
"That's the real problem in this situation," he said. "The UAW is somewhat of an unknown entity to Cerberus and Cerberus is an unknown entity to the union. I don't know if the parties understand each other that well. It's not like GM, which is an old hand in dealing with the union. I wouldn't assume it is only going to be two days."
The new CEO of Chrysler is Robert Nardelli, who was ousted as the CEO at retailer Home Depot (Charts, Fortune 500) after a dispute over his lucrative pay package, coupled with that company's poor stock performance. While the lead negotiator for the company is longtime Chrysler executive Tom LaSorda, who is vice chairman and president of the company, he shares those title with recently hired Jim Press, the former head of the U.S. operations of nonunion rival Toyota.
Merkle said it the UAW could run into real problems trying to win the job protections at Chrysler that it got in the GM deal.
"To mention private equity and job guarantees in the same sentence is just incredible, the two are diametrically opposed," he said. "Cerberus is the real wild card here. If they feel there's long-term gain from taking short-term pain, they may be willing to do that. They don't have to answer to any shareholders."
David Cole, chairman of the Center for Automotive Research, agreed that the UAW could run into a much tougher round of negotiations at Chrysler due to its new ownership.
"Anyone who's symbol is a three-headed dog guarding hell, these are tough people," he said, referring to the mythical character Cerberus. "They're prepared to play heavy-duty hardball."
But Cole said he thinks its unlikely that Chrysler would take the extreme step of hiring replacement workers to run the plant in an effort to break the union.
"I'm not saying it's impossible, but it's highly unlikely," said Cole. "Particularly with so much work concentrated in Michigan, it would be pretty ugly. Nobody wants that."
Cole also thought that Chrysler could probably withstand a strike that lasted weeks or even months without worrying about the threat of bankruptcy.
"A few weeks is not a big deal," he said. "The market is soft right now and they have a lot of inventory in the field. The union knows that, and it doesn't want a long strike, either."
The union's members at Chrysler get $28.75 an hour in straight wages, according to Chrysler. That comes to just under $59,000 pay when calculated for a 52-week, 40-hour a week year. Overtime pay and other adjustments generally takes the pay even higher.
But the total labor cost is far above that hourly wage when the cost of health care for both active and retired employees, as well as pension and other benefits, are factored in. Chrysler estimates it pays $75.86 an hour in total hourly labor costs. That's not only significantly more than the $46 an hour average at the U.S. plants of Asian automakers, but it's also higher than GM and Ford have been paying.
GM's labor costs came to $73.26 an hour even before the latest cost-saving labor deal, while Ford was paying $70.51. The UAW granted GM and Ford cost savings on their retiree health care programs over the last two years, but it did not grant the same cost relief at Chrysler because until recently its parent company was still making money. Chrysler was itself posting a profit until mid-2006, while GM and Ford started reporting losses on their North American operations in early 2005.
The union argues that labor costs are about $2,400 per vehicle, or only 8.4 percent of the average price of a car. It says that its members have already granted concessions to the automakers, while the company's top executives have gotten large pay packages. And the UAW membership at the U.S. automakers have dwindled as they closed plants to adjust for declining market share. Between 2002 and the end of 2006, the number of UAW members at Chrysler fell by 20 percent.
Chrysler has plenty of supply of most car and light-truck models. But Merkle said the strike could undermine the kickoff of the 2008 model of its Dodge Grand Caravan and Chrysler Town & Country, production of which was ramping up at plants in St. Louis and Windsor, Ontario. While the Windsor plant is not on strike, the lack of engines and other parts from struck plants in the United States will likely halt production there within a day or two.
The new minivan is a key product for Chrysler, accounting for roughly 15 percent of total sales the first three quarters of the year. The new model is a key vehicle for the company that it had hoped would be a hot seller. It offers a second row seat that spins around to face the back row of seats, and a table in between.
"That's the key product that will create issues for Chrysler," said Merkle. "If you see something last even five working days, it becomes a real problem for them. They need to be going great guns on production."