The United Auto Workers union's retiree health-care fund will own 55 percent of Chrysler LLC in exchange for cutting in half the automaker's $10.6 billion cash obligation to the trust, Bloomberg News reported.
Under the terms of the contract, the trust would get representation on the company's board of directors, said two people briefed on the deal, who asked not to be named because the matter is private.
The tentative agreement was approved unanimously by UAW leaders yesterday and will be sent to union locals for ratification, one of the people said. Chrysler, operating with $4 billion in U.S. loans, faces an April 30 deadline to restructure its costs or risk losing government support.
"With employees effectively sharing the risks, this could play to the advantage of the ailing company," said Howard Wheeldon, a senior strategist at BGC Partners LP in London. The UAW role, if confirmed, may be the only "feasible way of moving forward," he added.
The U.S. Treasury, which still is negotiating on Chrysler's behalf with the company's secured lenders, has little room to give the banks more equity. Fiat SpA would get 20 percent of the company to start, with the ability to increase ownership to 35 percent by hitting performance goals. The Treasury would keep 10 percent.
Shawn Morgan, a spokeswoman for Auburn Hills, Michigan- based Chrysler, declined to comment on the tentative agreement "as it still needs to be ratified," she said in an e-mail.
The Fiat connection may not be the best approach for saving Chrysler, though employee ownership through the union may help, BGC's Wheeldon said.
"The weakness remains Chrysler's product base and how quickly this can be adapted with or without Fiat's 'help,'" the analyst said.
Instead of contributing $8.8 billion to a retiree health- care trust, Chrysler will give the union trust shares of the company and a promissory note for $4.59 billion that will be paid in installments with 9 percent interest until 2023, one of the people said. This reduces the up-front cash Chrysler would have had to pay under its 2007 contract agreement with the Detroit-based union.
The union's equity in Chrysler is valued at $4.2 billion. If it can sell the shares for more, the Treasury would get the difference, one of the people said.
Workers also agreed to changes in work classifications, including the number of types of skilled trades. The contract also has a provision that all new hires for the company in the factories will make $14 to $16 an hour, up to 25 percent of the total Chrysler-UAW workforce. This increased from 20 percent in an earlier contract.
Separately yesterday, General Motors Corp. said it will be at least half owned by the U.S. government under a plan to slash its debt and cut dealer ranks nearly in half.
(The preceding article by John Lippert and Mike Ramsey was published April 28, 2009, by Bloomberg News.)
