Chrysler, Union Agree On Retiree Health Fund
Monday, April 27, 2009
Chrysler announced last night that it has reached an agreement with the United Auto Workers leaders to modify the union's labor contract and to reduce the amount that the company owes a retiree health fund.
Terms of the agreement were not disclosed, and union members have yet to ratify the deal. The agreement comes as the storied American automaker is seeking to fend off bankruptcy and liquidation.
If it is approved by union members, the deal would be a significant step toward that restructuring of the company that President Obama has said is necessary to ensure its future. Once the company reaches agreements with the UAW and its creditors, it plans to partially merge with the Italian automaker, Fiat.
The major obstacle for the company, however, is an accord between the automaker and its lenders that still needs to be reached.
The carmaker owes a fractious group of 45 banks, hedge funds and other firms about $7 billion, and unless the lenders shrink or relinquish those claims, Chrysler could enter bankruptcy. Negotiations between the automaker and its lenders are ongoing.
The union deal is considered a significant step toward Chrysler's rescue, however.
Chrysler owes $10 billion to its retiree health fund. The union agreement is expected to reduce that amount by half, while offering the health fund an equity stake in the company.
"Once again our active and retired members are being asked to make extraordinary sacrifices in order to help Chrysler return to viability," said UAW Vice President General Holiefield, who heads the union's Chrysler Department. "In order for the company to have a sustainable future, all stakeholders will have to show the same willingness to contribute to the common good that has been demonstrated repeatedly by our membership."
In a statement, the firm said the "provisional agreement provides the framework needed to ensure manufacturing competitiveness and helps to meet the guidelines set forth by the U. S. Treasury Department. As a result, Chrysler LLC can continue to pursue a partnership with Fiat SpA."
Fiat, which has pressed for union concessions, declined to comment.