Naughton: Big Labor Sure Isn't Dead in Detroit

Last week in a crowded amphitheater at Chrysler's Auburn Hills, Mich., headquarters, the carmaker's CEO was having a hard time keeping the media on message. He was there, flanked by Michigan Gov. Jennifer Granholm and United Auto Workers (UAW) President Ron Gettelfinger, to announce $1.8 billion in new factories Chrysler is building in suburban Detroit. But all the reporters wanted to talk about was DaimlerChrysler's plans to sell off the ailing American automaker, which lost $1.5 billion last year as sales of its SUVs tanked amid soaring gas prices. CEO Tom LaSorda, who is in the unenviable position of trying to drive a car with a couple of blown tires and a FOR SALE sign in the window, finally ran out of ways of steering around the question. "Maybe you should ask him," he said, pointing to Gettelfinger. "He's my boss."

When it comes to the sale of Chrysler, the union is in the driver's seat. For starters, Gettelfinger sits on DaimlerChrysler's 20-member Supervisory Board, the European equivalent of a board of directors. Daimler's board meets Wednesday to discuss the suitors swirling around Chrysler and possibly pick a favored one with which to negotiate exclusively. And while one voice among 20 might not sound like much, Gettelfinger brings much more to the table. Specifically, his union holds the key to unburdening Chrysler of its crushing $18 billion in liabilities for workers' health-care benefits. Those liabilities far outstrip the value Wall Street puts on Chrysler, which is expected to fetch $4.5 billion to $10 billion (a fraction of the $39 billion Daimler paid for it a decade ago). And many believe a deal will only get done if the union gives the buyer a break on those generous medical benefits. In exchange, the buyers are offering the union its own stake in Chrysler so that it can benefit from any turnaround. That kind of leverage puts Gettelfinger in control. "The union flat out owns the company," says labor economist Sean McAlinden of the Center for Automotive Research in Ann Arbor. "You can't sell Chrysler unless Ron Gettelfinger says so."

So what does the union boss want out of all these prospective buyers? For them all just to go away. At the Supervisory Board meeting, Gettelfinger will argue for the status quo. "We going to do our very best to keep Chrysler Group under DaimlerChrysler," Gettelfinger told reporters after last week's press conference. "They [Chrysler] have got a recovery plan in place. They've made their restructuring announcement back on Feb. 14 at the same time they said all options are on the table [which effectively put Chrysler in play]. And it appears to me that we're moving forward and we just don't need the aggravation of going through whatever happens here."

That argument, though, is likely to fall on ears that have been deafened by the din from German investors demanding that Daimler dump Chrysler. Even though Chrysler helped Mercedes though a rough patch earlier this decade, the prevailing view in Germany is that the pedestrian American automaker has only sullied the august Old World luxury line. Gettelfinger claims to have "a lot of support" on the Supervisory Board, in which half the seats are held by labor representatives—mostly German unions. In the end, though, Daimler is almost certain to sell Chrysler. But Gettelfinger's influence will likely coax the German auto company into retaining a significant stake in its American problem child. That means Mercedes will continue to build transmissions for the Chrysler 300 sedan, while Chrysler's Jeep engineers keep helping Mercedes develop its next generation M-class SUV.

So then who will buy Chrysler? The bidders include some of the deepest pockets on Wall Street, private- equity players The Blackstone Group and Cerberus Capital, as well as Vegas billionaire Kirk Kerkorian and Canadian auto supplier Magna International. Despite Chrysler's big health-care debts, the bidders are attracted by its lead in the lucrative minivan market, as well as its Jeep brand, which has the classic American appeal of Harley Davidson. Each suitor has come calling on the UAW, with Kerkorian's reps meeting last weekend with workers at the Toledo Jeep factory who are making a long-shot bid to engineer an employee buyout. And there's been plenty of action at the UAW's "Solidarity House" headquarters along the Detroit River. "We've been quite busy," Gettelfinger said, smiling, "entertaining phone calls and meetings."

Gettelfinger won't say who, if anyone, he prefers, but he has no problem identifying who he doesn't like: the private-equity players, Blackstone and Cerberus. He fears they will carve up Chrysler and sell it off to the highest bidder, while destroying jobs and communities along the way. "I do have a very grave concern about these equity companies," he says. "I call 'em 'strip and flip'."

Last week, Gettelfinger proved he could chase off these well-heeled Wall Street money men. Cerberus pulled out of a plan to help buy out bankrupt auto supplier Delphi when the UAW refused to grant further wage concessions. The day before, Cerberus (named for the three-headed dog that guards the gates of Hell) left with its tail between its legs, Gettelfinger hinted that Delphi could face a strike if it and its prospective buyers keep pressing the UAW for deeper cuts. "This thing has gone on long enough," he said. "And some people took advantage of a situation that just makes you sick."

Those who covet Chrysler can expect similar tough talk as the bidding heats up. In fact, all of Detroit will face Gettelfinger's steely gaze as they come to the table this summer to bargain a new contract that the beleaguered Big Three hope will slash health-care and pension costs that add about $1,500 to the cost of every car they make. Despite Motown's malaise, Gettelfinger doesn't seem in a giving mood, especially since he already granted concessions to GM and Ford in 2005 that saved them billions on benefits. Gettelfinger refused to give Chrysler a similar break at the time because it was making billions on hot models like the Chrysler 300. Now DaimlerChrysler chief Dieter Zetsche blames the union for forcing the company to put Chrysler up for auction. "That's very nice of him," Gettelfinger said, his voice dripping with sarcasm. "Go back to him and say, 'Show me exactly how that has had quite an impact on all of this?' Because I don't believe it has."

In an age when Big Labor is given up for dead, Ron Gettelfinger is emerging as Detroit's most powerful man. He doesn't really look the part, with his slight frame and neatly trimmed white mustache. (In fact, he looks like a college professor, which is apt since he's the first UAW president with a bachelor's degree). But UAW contracts that built a blue-collar gold standard in America since World War II have given Gettelfinger the keys to the American auto industry's future. In order for Detroit to have a future, though, Gettelfinger can't simply stick with the status quo. "Ron is an incrementalist and that will be the end of Detroit," says economist McAlinden, a former auto worker. "Detroit needs a big transformation." That's for sure. Motown's classic bigger-is-better formula for building cars and bargaining contracts has run out of gas. Now Gettelfinger has a chance to prove he has a better idea.