A jolt of reality about the Cerberus-Chrysler Deal. - Peter DeLorenzo, autoextremist.com Link

Detroit. After the sheer tonnage of blather and verbal hand-wringing that has been in the media over the last 72 hours, I would hope that readers of this column would be up to speed about the Cerberus Capital Management-Chrysler deal by now. But just in case you just can't get enough, I'm offering up a few more thoughts to consider about how this deal will really play out - because there's a huge gap between the public pronouncements and the reality of the situation.

Let's start out by defining the concept of "long term." Listen closely to the local media in this town and to other media sources around the country, and the prevailing opinion is that this deal will help save the company because Cerberus will use its private status to cut to the quick and get Chrysler's structural costs in order without all of the hand-wringing and obstacles associated with running a publicly-held company. And that after all is said and done, Cerberus is a "long-term" investor that stays focused on the goal and will do the right thing.

Maybe so, but consider this - the Cerberus attention span for this deal actually only extends as far as the contract talks with the UAW this summer. If Cerberus gets what it needs and what it wants from the UAW, then their attention span grows exponentially. If the UAW plays its strident "entitlement" card as if it's 1980, then all bets are off and Cerberus will part-out the company - despite all of its touchy-feely public pronouncements.

Is this the end of the UAW as we know it? If the UAW deigns to think that they're going into these negotiations from a position of strength and power, then we're talking Eve of Destruction-type scenarios here. In this global economy, the classic UAW position of entitlement and "getting what we deserve" is so obsolete and out of touch that it's excruciatingly painful to even contemplate. GM and Ford are going to let Cerberus do the heavy lifting here. Cerberus will present the UAW with a one-time, non-negotiable, "take-it-or-leave-it" package that will put the company back on track to profitability. The UAW will have to invest mightily in its own health care program as a key component of the deal - or else it's all over but the shouting.

Simply put, the UAW has to get their arms around the idea of reduced jobs, reduced pay and reduced benefits, or face the ugly alternative, which is no jobs at all. I have not seen one shred of evidence that the UAW actually "gets" this idea, however, as dealing with reality has never been its strong suit.

And one more thing that this Cerberus deal puts on the table?

It brings forward the heretofore unthinkable idea that the domestic auto industry could, in fact, function just fine in a world in which the UAW simply didn't exist. I am absolutely convinced that if the new Chrysler Holdings, GM and Ford got together and presented their package of reduced wages and benefits to the UAW and said that this is the deal, take it or leave it - and then locked the union out if it balked - there would be a lineup 20 people deep applying for every single job available at the reduced package price all around the country. The end of the UAW? Let's just say the fate of the union is hanging by a thread.

Cerberus is happy with the existing Chrysler management team. Sure it is. Again, despite public pronouncements to the contrary, this is the one aspect of this deal that's pure, unmitigated bullshit. No knock against Tom LaSorda personally - he's a good man and a gifted manufacturing guy, but he's never been CEO material, so this is one area where Cerberus will look to make changes. And those changes will come sooner rather than later. Count on it.

Cerberus is confident in Chrysler's present and future product lineup. Another bit of fiction here. Chrysler does have some strong product entries, but the overall outlook is messy. The Jeep franchise is looking better, and a new generation of its vaunted minivans will debut this fall, but the company is too overly-dependent on big trucks and SUVs to engender any real confidence at this point. The new Chrysler Holdings will have to pull out all the stops to get on an upward trajectory product-wise again - and the clock is ticking.

Cerberus is in this for the Big Picture glory of putting an American company back on its feet, helping the working men and women of Chrysler have solid futures, and delivering profitable returns when it's prudent - two years down the road at least. Sift through all of the public statements from John Snow, the Cerberus chairman and former U.S. Treasury Secretary, and you'd think that Cerberus is filled with Shiny Happy People brimming with endless and unwavering supplies of benevolent optimism for this deal, the future of Chrysler, and Truth, Justice and the American Way while they're at it. The Bottom Line? Cerberus is in it for the money. Yes, they're sinking a ton into Chrysler, but you can forget about all of the platitudes and puffery from the last few days and remember one fundamental thing about this deal (besides the money thing, of course): Cerberus has an agenda that must be met and a timetable in which to get it all done. If any of it falls through the cracks, they will part-out Chrysler so fast it will make your head spin.

Fasten your seatbelts - it's going to be a bumpy ride.
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Indeed.

This may be a good thing, if painful in the short term. The American auto industry can't continue doing business as usual. Sooner or later it will become a "profit or die" scenario. Cerberus may just be accelerating that for Chrysler.

I hate it for the auto workers whose livelyhoods hang in the balance, but whether by Cerberus' accountants or market forces, this has to be addressed if the company can continue to operate. Maybe it wouldn't be the people working there today, but in 10 years if not for Cerberus, but everyone stands to lose their job if the company they work for isn't solvent.

More rides on this than just Chrysler employees' jobs, too. Think of all the suppliers and support industry as well. Where Chrysler goes, Ford and GM will likely follow. The consequences to the U.S. economy if any of them go belly up are enormous.

I hope the Unions loose.

lose, loose. get a dictionary. look them up.

cerberus is interesting. connections to the republican party, and rumors of connections to the russian mafia. but hey, the UAW most likely has connections to the american mafia, so what's the harm?

[This message has been edited by lurker (edited 05-23-2007).]

quote Originally posted by Formula88: This may be a good thing, if painful in the short term. The American auto industry can't continue doing business as usual. Sooner or later it will become a "profit or die" scenario. Cerberus may just be accelerating that for Chrysler. I hate it for the auto workers whose livelyhoods hang in the balance, but whether by Cerberus' accountants or market forces, this has to be addressed if the company can continue to operate. Maybe it wouldn't be the people working there today, but in 10 years if not for Cerberus, but everyone stands to lose their job if the company they work for isn't solvent. More rides on this than just Chrysler employees' jobs, too. Think of all the suppliers and support industry as well. Where Chrysler goes, Ford and GM will likely follow. The consequences to the U.S. economy if any of them go belly up are enormous.

Here, here.

"Toyota has a non-union workforce, so expect the unions to challenge their policies. Quite frankly, Toyota's success has led American automakers to ask their unions for tremendous concessions. The union versus non-union debate has been one of the greatest advantages for Toyota in its climb to the pinnacle."

http://www.nwaonline.net/ar...s/050507brockcol.txt

"Chrysler said its 46,276 unionized hourly workers in the U.S. make $26.86 an hour on average. That jumps to $76 an hour when health insurance, pension and other benefits are added in.

Average pay for Toyota's 22,000 North American production workers is $20 to $25 an hour. Toyota said it couldn't provide a pay figure that included benefits but experts said it was significantly lower than what Chrysler was paying."

http://www.latimes.com/busi...a-headlines-business

I worked in engineering at Chrysler HQ in Auburn Hills for last summer. I know a lot of good people there. But thankfully the costs are not in the engineering workforce as much as they are in the manufacturing work force. I also know the EVP of Manufacturing. There are going to be a lot of changes going on there...it will be interesting to see how this plays out.

We in the Military have been without a union and we do just fine.

Now if this union bargaining results in a lower price for a new car I am all for it. If not, I guess we'll all be buying "cheri's" [Chinese cars] since the big 3 will simply cease to exist since Cerebus and the other corporate owners of Ford GM etc, cannot afford to do business like this forever.

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1988 Fiero Formula T-tops
CJB 143 of 1252 "factory T-top cars"

I think that's awesome. Hopefully the days of unions' muscle-flexing is over. They're finally about to come face to face with an opponent that will shove it right up their ass if they try to play hard ball. Let all those holier-than-thou get pissy and they can take their "Proud Union Member" bumber stickers and go apply for a job flippin' burgers at NON-union McDonalds. Unions have been running this country into the ground for way too long, I can only pray this is the beginning of the end.
I love poetic justice.

quote Originally posted by F-I-E-R-O: Here, here. "Toyota has a non-union workforce, so expect the unions to challenge their policies. Quite frankly, Toyota's success has led American automakers to ask their unions for tremendous concessions. The union versus non-union debate has been one of the greatest advantages for Toyota in its climb to the pinnacle." http://www.nwaonline.net/ar...s/050507brockcol.txt "Chrysler said its 46,276 unionized hourly workers in the U.S. make $26.86 an hour on average. That jumps to $76 an hour when health insurance, pension and other benefits are added in. Average pay for Toyota's 22,000 North American production workers is $20 to $25 an hour. Toyota said it couldn't provide a pay figure that included benefits but experts said it was significantly lower than what Chrysler was paying." http://www.latimes.com/busi...a-headlines-business

About $1400 of a GM car is union costs.

The equivalent costs in a Toyota car total about $400.

But that's only part of the story. As a non-union carmaker, Toyota can size its workforce to the job at hand. If they need to hire temp workers for a few weeks, they can, without a union throwing a hissy fit. If they need to pare down the hourly workforce, there is no union to go on strike in protest. If there is a worker who just screws off and doesn't do his job, the company can fire his butt and hire someone who will work, without going through a long compex process.

It really does give Toyota an upper hand. Domestic automakers cannot control their labor costs, because the UAW has a veto over every labor-related decision the companies make. Giving this kind of control to people outside the company structure, who are not beholden to the stockholders, the actual owners of the company--this is not a good way to run a business.

And yes, one way or another, eventually the domestic auto business will come to a crisis: either the unions will change, or the union employees will lose their jobs.

Union leadership historically has not been able to look at the larger picture; as a result, they are utterly unwilling to compromise. So far the only things which have saved domestic auto manufacturing is the fact that American workers are the most productive in the world; and the fact that the countries which have lower labor costs also have a lower standard of education: the workers must be educated before they can do the jobs Americans can do after graduating from high school.

Besides, replacing an entire domestic labor force with a foreign-based labor force would be, at best, an unwieldy process.

The union leadership seems utterly unconcerned about the profitability of the companies which employ their members. I'm sure there must be union leaders who understand that if the automakers don't earn profit, they go away; but these must be a small minority because the unions are almost universally antagonistic when it comes to negotiating.

Ed

Almost everyone is being affected by the reduction of retirement / medical benefits EXCEPT the people who need to make important decisions for all of us.

Our federal, state and local government workers in Michigan have the very BEST benefits. Our state has almost a BILLION dollar defecit. Do you think reducing workers benefits has EVER been mentioned as a way to partially reduce the defecit? NO! Raising taxes is their idea of a solution.

Until our government officials are affected by benefit reductions as we all are or will be in the private sector, nothing will happen.

yup, and we can finally get rid of employers paying medical benifits. this has been such a burden on the corporations. especially in these days of ever increasing medical costs.

quote Originally posted by FrugalFiero: Almost everyone is being affected by the reduction of retirement / medical benefits EXCEPT the people who need to make important decisions for all of us. Our federal, state and local government workers in Michigan have the very BEST benefits. Our state has almost a BILLION dollar defecit. Do you think reducing workers benefits has EVER been mentioned as a way to partially reduce the defecit? NO! Raising taxes is their idea of a solution. Until our government officials are affected by benefit reductions as we all are or will be in the private sector, nothing will happen.

Just something for you to chew on....

I, as an active duty Soldier, am a federal government worker. I get GREAT medical and a lot of vacation time and now, I have a retirement plan I can contribute to. (Before it was 20 years to get a retirement plan or nothing for less than 20 years of service.) For the most part, the benefits are the ONLY thing that has kept me working for the federal government. Other than the benefits, I could make a helluva a lot more working in the private sector. Have you ever seen the pay scales of a GS civilian? They're pretty low for the job description and responsibilities.

quote Originally posted by Pyrthian: yup, and we can finally get rid of employers paying medical benifits. this has been such a burden on the corporations. especially in these days of ever increasing medical costs.

It really has been a burden to small business like mine. I don't have any health insurance but must pay for it for all my employees plus workmans comp. When you break it all down I make less then my 4 top payed guys in a year.

quote Originally posted by Phranc: It really has been a burden to small business like mine. I don't have any health insurance but must pay for it for all my employees plus workmans comp. When you break it all down I make less then my 4 top payed guys in a year.

exactly. employers only needed it as a "carrot" to keep workers from going elsewhere that does offer it. now that its a "buyers" market for employment, the offer can be less & less.
the benchmark has been lowered.

quote Originally posted by Pyrthian: exactly. employers only needed it as a "carrot" to keep workers from going elsewhere that does offer it. now that its a "buyers" market for employment, the offer can be less & less. the benchmark has been lowered.

Wow, talk about not seeing the big picture. It might be hard living in the center of it.. But Detroit is a perfect example of Unions and Local Govt taxing/forcing companies out of an area. When the companies leave, the workers leave, workers leave even more tax revenue leaves. Then local gov't thinks it's a good idea to raise taxes even more to cover the shortfall.

quote Originally posted by Pyrthian: exactly. employers only needed it as a "carrot" to keep workers from going elsewhere that does offer it. now that its a "buyers" market for employment, the offer can be less & less. the benchmark has been lowered.

Carrot? Try by law. I had no choice. I couldn't even pay more per hour so they could buy their own if they wanted.

quote Originally posted by Uaana: Wow, talk about not seeing the big picture. It might be hard living in the center of it.. But Detroit is a perfect example of Unions and Local Govt taxing/forcing companies out of an area. When the companies leave, the workers leave, workers leave even more tax revenue leaves. Then local gov't thinks it's a good idea to raise taxes even more to cover the shortfall.

yes, it does suck here in Detroit. no doubt. I am bailing out of here as soon as possible - just waiting for daughter to graduate this year.
but, that does not change history. look at past working conditions. look at working conditions in places that are "taking our jobs". these are the conditions we would have to accept to be "competitive". fortunately - the asian workers ARE starting to make their own demands. they will be going thru what we went thru in the 30's. it will come around. it wont be like the 70's. this is after all what made us a superpower. I agree 100% that the UAW is the main cause of the crap Detroit is going thru.
why wine & dine this girl, when that girl will give it up cheap....
beleive me when I say: a company wants to pay you as little as possible for your work. when the upper benchmark is lowered, it will make its way around.
but, I also do think anything sold in the USA should be made to USA standards. min wage, disability, EPA, etc. fair is fair after all. I am quite sure GM & Ford could do alot more if OSHA wasnt in the way. or worry about dumping waste into the local river. this would not only make our products more fairly competetive, it would rasie the living standards of the folks making goods for us.
we have child labor laws. yet, we buy things made by children. is it OK, or isnt it?

I get your point.. but like you I grew up in a Union dominated area, and watched all the jobs leave.
Honestly I think most auto mfgrs would probably start employees out at about $15 an hour with a health benefit pkg after 90, just to attract the kind of workers they want.
By getting rid of the union, they'd be able to pay by skill instead of just longevity.
Take a guy like 84Fiero123. Guy has tons of skills and has worked most parts of the line IIRC, so he'd be worth more than the guy who pushes a broom. Unfortunately in a fair amount of these places.. It's the same pay scale.. "you're in the union now"

Too bad too many good ppl have been soured on employee/employer relations by the us VS them mentality. They've forgotten all about incentive based rewards. Learn more, be worth more, earn more. If you're content to just make 15 putting the tires and lug nuts on then fine.. but don't hold back the guys who want to learn to do more.

quote Originally posted by aceman: Just something for you to chew on.... Have you ever seen the pay scales of a GS civilian? They're pretty low for the job description and responsibilities.

The pay doesn't seem to be out of line with the private sector. http://www.opm.gov/oca/06tables/txt/gshour.txt

quote Originally posted by FrugalFiero: The pay doesn't seem to be out of line with the private sector. http://www.opm.gov/oca/06tables/txt/gshour.txt

ARE YOU F-ING SERIOUS??????????

Most employees are GS-7 or less. I have friends that work as a parts/tool room attendant in our maintenance shop earning GS-5/6 pay of around $15.00/hr. I know others turning wrenches for an average of $16.00/hr after 15 years on the job. I know others that are administrators of 200 person military units making less than $40,000/yr.

As a Soldier, I've been offered jobs that top my pay out by quite a bit! I don't take them because their benefits packages are no where near mine.