Video: Strike impact

By Roland Jones Business news editor
msnbc.com
updated 10/10/2007 4:30:27 PM ET 2007-10-10T20:30:27
ANALYSIS

There was a feeling of déjà vu in Detroit Wednesday, as unionized workers walked off car production lines and out of warehouses in a nationwide strike against Chrysler after a union-imposed deadline passed without a new contract agreement.

Just over two weeks ago, the United Auto Workers union ordered 73,000 workers to walk out at General Motors after a similar deadline passed. But while GM strike lasted only two days, a strike could unfold differently at Chrysler, observers say.

While the issues in the strike are broadly similar to the GM case, Chrysler is not under the same pressure to settle, in part because it has become a privately held company and does not have to answer to public shareholders as GM and Ford do, noted Aaron Bragman, senior automotive analyst at consultancy Global Insight.

In August, Germany's DaimlerChrysler AG completed the sale of 80.1 percent of Chrysler to private equity firm Cerberus Capital Management LP — a factor that could mean the strike at Chrysler is dramatically different to the walkout at GM, Bragman said.

“There are no big institutional shareholders pressuring management and saying, ‘Hey, we need to come to a settlement soon because the share price is going down and we are losing value,’” Bragman told CNBC. “So Cerberus and Chrysler could potentially hold out for quite a bit longer than a public company.”

The issues at stake in the Chrysler talks are similar to those between the union and GM. While the automaker wants to reduce the nearly $20 billion it pays for active workers, retirees and their families’ health care — which U.S. automakers say add some $1,500 to the cost of building each car — the UAW wants to preserve much of those benefits and wants Chrysler to also guarantee that certain new products will be built at UAW-staffed factories.

But those guarantees may be hard to squeeze out of Chrysler’s new owner Cerberus, which is looking to put in place a more competitive structure at Chrysler. The automaker pays some of the highest wages in the automotive industry, and Cerberus has a track record of investing in troubled companies with a view to making them more profitable, so it may take a more aggressive stance with the union Bragman noted

“Chrysler may not be in a position to deliver,” Bragman said. “To get a GM-style set of guarantees they would have to be fully engaged in their product plan like GM, but Chrysler isn’t there yet, so they are probably unable to offer job security, to commit to building product X in plant Y at a certain date, because they may not know what their product plan is going to be.”

Chrysler’s negotiations with the UAW may also be more acrimonious, observers say, because Chrysler didn’t get the health care concessions gave to GM and Ford in 2005 that reportedly were worth some $340 million a year. Back then, the automaker was the U.S. division of DaimlerChrysler and was thought to be in good financial shape compared with GM and Ford.

Today, Chrysler’s financial footing looks less secure. The automaker is down to fourth place in  U.S. market share and has seen sales decline 2.7 percent this year. Wednesday’s strike, which has seen some 49,000 UAW members put down tools at 17 of the company’s 22 plants, is expected to cost the automaker some $50 million a day. It is the first UAW strike against Chrysler in a decade.

Union members certainly seem steeled for a fight.

“We’re not backing down. We’ve made concession after concession over the last few years. It’s never enough,” said Ronnie Bryant, 45, a 12-year veteran of the Chrysler Stamping Plant in Twinsburg, Ohio.

Striking UAW workers typically receive only $200 a week from the union during a walkout, a fraction of their usual wages, so it is questionable how long workers will be able to last, analysts say.

A short strike of around a week would not have a major impact on the automaker, as it has enough cars and trucks on dealers’ lots to last anywhere from three weeks to three months, according to Ray Wert, a senior editor at car enthusiast Web site Jalopnik.com.

“Chrysler has a glut of production and can weather a strike well,” he told CNBC. “But things could be different with Chrysler because Cerberus has deep pockets. The UAW might think it can get more out of them than they can with a public automaker like GM and Ford.”

If a strike is prolonged, Chrysler could be hurt by a shortage of its new line of Dodge Grand Caravan and Chrysler Town & Country minivans, a bread-and-butter product that is being backed by an aggressive marketing campaign.

“Chrysler is ramping up production of these minivans, and so this is one specific vehicle where the company might suffer negative consequences from a prolonged strike,” said Jesse Toprak, chief economist for the auto research site Edmunds.com. “A few days will not hurt the process dramatically because they have sufficient inventory, but if this lasts for over three weeks that’s when we get into the territory where people get worried, and given the shape both sides are in I don’t think they will want to let this go on that long.”

The two-day GM strike ended with a landmark agreement under which new employees will be paid lower wages and the union will assume responsibility for retiree health care, managing a  trust fund worth at least $35 billion.

The Associated Press contributed to this report.

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