Vol. 73/No. 19      May 18, 2009

Chrysler immediately announced that nearly all of its 30 assembly and parts plants in the United States, Canada, and Mexico will be idled for the duration of bankruptcy proceedings, which the company projects will be several months.

During its first day in bankruptcy court Chrysler also announced the elimination of 5,000 jobs, with four plants to be closed by the end of next year—in Sterling Heights, Michigan; St. Louis; Twinsburg, Ohio; and Kenosha, Wisconsin.

Through these proceedings Chrysler is seeking to reemerge in joint partnership with the Italian auto company Fiat. This is the first bankruptcy filing by a major U.S. automobile company since Studebaker in 1933.

The May 2 New York Times presented the concessions by the union in glowing terms, saying that if the company survives, for the union this could turn out to be “the Cadillac of bankruptcies.”

In the concessionary agreement approved by the union, half of the $10 billion Chrysler owes to the retirees’ health-care fund will be paid in almost worthless stock instead of cash. In return, the union will own 55 percent of the company and get a seat on the board of directors.

The union also agreed to cuts in supplemental unemployment benefits, suspension of cost-of-living pay increases, and limits on overtime pay.

“I’m very comfortable,” commented UAW president Ronald Gettelfinger to National Public Radio. “It’s not like we’re going into this bankruptcy fighting with Chrysler and Fiat and the U.S. Treasury. We’re going in there in lockstep to put our agreements in place.”

In an interview on Fox Business Network May 1 Gettelfinger attempted to distance the union officials from direct responsibility for the company, saying the 55 percent ownership shares in Chrysler will be held by the retiree trust fund, not the union.

Under the union’s 2007 contract, Chrysler as well as GM shifted their responsibility for covering retirees’ medical insurance onto a union-managed Voluntary Employees’ Beneficiary Association (VEBA) trust fund. Praising that agreement, Gettelfinger told the Wall Street Journal, “we reduced the company’s obligation to the retirees down to about 60 percent.”

The auto barons have succeeded in imposing new cuts since then. The recently approved agreement allows VEBA to begin “adjusting” workers’ health-care benefits in 2010, two years sooner that the previous contract allowed. In addition, the union agreed to extend the deadline for company payments to the fund to 23 years.

The government is bankrolling Chrysler’s bankruptcy expenses, providing more funds than the $5 billion bailout the company had originally requested to avert bankruptcy. Chrysler has been given immediate access to $1.3 billion in federal funds and once it “restructures” it receives another $4.7 billion. About $10 billion in new government bailout funds will be given to Chrysler through the bankruptcy process, reports the Washington Post.

VEBA, with about $10 billion in liabilities, is receiving a $4.6 billion loan by the U.S. Treasury, payable over 13 years at 9 percent interest.
 
 
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