TOPICS > Economy

Auto Workers Walk Out at Chrysler, Reach Quick Settlement

October 10, 2007 at 6:15 PM EDT

JUDY WOODRUFF: Now, the short auto workers strike at Chrysler and what’s at stake for both sides. Jeffrey Brown has our update.

JEFFREY BROWN: As strikes go, it was a short one. More than 30,000 auto workers walked off the job at Chrysler at 11:00 a.m. this morning, but by 6:00 p.m., the union reported it had reached a settlement. For the latest, we turn to Warren Brown, the longtime automotive columnist at the Washington Post.

Well, Warren, do we know yet what led to the quick breakthrough?

WARREN BROWN, Washington Post: Yes, Jeff. Frankly speaking, what the Chrysler UAW wanted was pretty much the same pattern that GM had, which is a Voluntary Employment Benefits Association agreement that would shift a lot of the health care costs to a UAW benefits group, but fund it, you know, by the corporation.

The quibbling, as I understand it earlier — it was actually more than quibbling, if you consider $11 billion — was over how much money Cerberus Capital Management was going to put into the Chrysler VEBA fund. And apparently there’s been some agreement on that.

Cerberus initially objected to the amount that the Chrysler UAW wanted to go into its beneficiary association fund, primarily because Chrysler is in a pretty bad position, in terms of product. They’re relatively bereft of small cars. The Dodge Ram pickup, there’s more than a 60-day supply. And the Chrysler Sterling, which was supposed to have been a bit of a hit for them, is now relatively flat.

So, actually, on the one hand, Jeff, Chrysler, even though it didn’t welcome the strike, and if the strike had gone on for a few days it would not have really hurt them so badly, because that way they can draw down their inventories of vehicles that they have overstocked now because of slow sales, but the question now remains: Is the amount of money that Cerberus Capital Management is agreeing, apparently, to put into the Chrysler UAW VEBA fund, is that going to do more than placate the UAW?

By that, I mean, is it going to hurt any product development plans sorely needed by Chrysler? So that remains to be seen.

Compromising on health care

JEFFREY BROWN: Well, let me ask you about that. Health care clearly one of the sticking points, and the one you suggest they overcame tonight. The job issue was another one that there had been a lot of talk about, and Chrysler's desire, apparently, to move more jobs offshore to make more of its products overseas.

WARREN BROWN: Well, you know, these job security -- so-called job security clauses, they're really, to me, not really very realistic. They're kind of amelioratory things, you know, things to kind of like placate the current anxiety.

But the bottom line is that, as long as you have anywhere from, you know, a $2,000 to almost $3,000 price gap, production cost price cap, between what Chrysler is making and what Toyota is making, the consumer is the person setting the pattern. It's not GM that's setting the pattern. It's not the UAW that's setting the pattern. It's the consumer setting the pattern.

And by that I mean, if you would look at Big Three market share in the U.S. market, say back in 1998, it was 71.2 percent. Now, it is down to 51.3 percent. That has nothing to do with outsourcing; that has everything to do with consumer choice in the U.S. market.

And it's consumer choice that's going to decide all of this, which basically means that, if Cerberus Capital Management, Chrysler LLC has to outsource -- and believe me, they will -- you know, they will try to do as much of it is as they possibly can.

The role of Cerberus

JEFFREY BROWN: You've mentioned Cerberus now. This is the private equity firm. This was a real new player in this industry, in these talks. Was this looked at as a kind of first test for whatever new model they want to bring to this industry?

WARREN BROWN: Well, yes, as a matter of fact. And still, we don't have all of the details yet, but, you know, the cynical thinking, if that's what you want to look at it as being, is that Cerberus Capital Management has been known pretty much for buying, breaking up, selling off the parts, regardless of, you know, union sentiments.

And the question was, you know, how much money were they willing to lose in a strike, should it go long, before they resorted to that pretty much traditional strategy for Cerberus Capital Management? Which is why I suspect, I don't know, but it's just my personal feeling, having looked at this, is that both the GM strike and the Chrysler strike were essentially theatrical.

It was basically the union leadership's way of selling something to the rank-and-file union members, "Look, we fought as hard as we possibly could fight for you, in what essentially is an impossible situation, again, primarily because of what consumer demand is doing to the market. And this is what we've got."

And so, you know, that's my take on it. Whether or not, you know, that is accurate, I'm fairly certain somebody from the UAW will have something else to say about it.

JEFFREY BROWN: Well, let me ask you briefly. I mean, you've mentioned GM and it's an interesting day in the industry because, just also late today, the GM and UAW announced it had voted and ratified the contract with GM.

WARREN BROWN: Precisely.

GM on a roll

JEFFREY BROWN: When you look at that one, what jumps out at you as the key thing, especially looking forward now, with both these companies having gone through negotiations?

WARREN BROWN: Well, you know, GM is really on a roll. The media hasn't really caught up to the fact that GM is on a roll right now, but when you look at GM's product portfolio and everything else, GM really is beginning to turn out some really great products right now.

August and September were up months for GM, in terms of sales. In terms of what the contract, you know, does for GM, it allows them to continue that role. It also reduces something like $2,000 in the production cost gap between GM and Toyota, the per-car production cost gap.

I mean, GM was down, and Toyota was over about, you know, $3,000 versus Toyota. Now, you know, Toyota still has about an $800 advantage. GM is going to have to find some kind of a way to reduce that gap, because, as I said, consumers are controlling this market.