Chrysler Employee Group Offers Buyout Option to DCX; Kerkorian Reportedly Interested

Information has come to light in reports in both the Detroit News and Wall Street Journal (WSJ) about an offer sent to DaimlerChrysler (DCX) CEO Dieter Zetsche on 9 April. In a letter to the chief executive, a group of 25 Chrysler employees calling themselves the DaimlerChrysler Employee Buyout Committee offered an alternative plan to Zetsche: an employee buyout. The letter was signed by Michelle Mauder, a Chrysler employee at the company's Toledo (Ohio) Supplier Park. In the proposal, Mauder calls for an employee buyout of 70% of Chrysler, with the current Daimler organisation holding the other 30%. The plan is reportedly under review by legal departments at Chrysler, DCX, and the United Auto Workers (UAW) union. While the members of the Employee Buyout Committee are all UAW employees, the plan itself has not been officially endorsed by the UAW.

"The bottom line is the corporation won't take the hit, it's the employees, the shareholders and the consumers," Mauder said in an interview with the Detroit News. "So we need to work as a team. Unless they come up with a better plan, this is it… it's really in Daimler's ball court now." Billionaire investor Kirk Kerkorian's Tracinda. is reportedly interested in a meeting with the employee group, stating that there seems to exists some commonality of interest between the bid that Tracinda is trying to make for Chrysler and the proposal that was sent to DCX management by the Ohio committee. To date, Tracinda has been largely ignored by DCX management, who held meetings two weeks ago in New York with three of the potential bidders (Magna, Cerberus, and Blackstone) but shut Tracinda out of the talks. General sentiment among DCX executive staff seems to be one of mistrust towards Tracinda and Kerkorian, largely based on previous dealings in the wake of the merger that created DCX a decade ago.

Next Best Option: Magna

If DCX should decide that direct employee ownership is not in the best interests of the company, the proposal letter to the CEO also mentions what the team of 25 members feels the next best option would be. "If DaimlerChrysler is adamant to sell and (Canadian auto supplier) Magna (International Inc.) would be the leading contender, our committee would prefer the option of partnership with them versus a private equity firm. Magna, the Canadian operations, had an established employee equity and profit participation program." Magna is currently one of the three top contenders in the bidding for Chrysler Group, and the only one that is somewhat favourably supported by the all-important unions. UAW president Ron Gettelfinger has stated publicly that he does not feel that a sale of Chrysler is a good idea, and that the union's official position is that it should remain within DCX.

The CAW Says No

The public announcement of the employee buyout option drew a sharp reaction from the Canadian Auto Workers (CAW) union president Buzz Hargrove, who unequivocally stated that the CAW does not support an employee ownership plan. "We're not interested," Hargrove told Automotive News in a telephone interview. "The workers already have everything invested in that company today including their jobs and their pensions." He added that it would not be prudent for the workers to further invest by owning shares of the company. Hargrove has rejected the idea of employee ownership before, when the idea was first floated by billionaire investor Kirk Kerkorian's Tracinda (seeUnited States: 11 April 2007: CAW President Slams Door on Kerkorian Bid for Chrysler). "We see no advantage in that whatsoever," he said at the time.

Outlook and Implications

The new offer to the DCX executive staff from a group of employees is quite interesting, as it does not seem to come from the UAW management directly, but it has been suggested that it may be a "feeler" to DCX that would allow such an arrangement to be explored without direct involvement. Neither DCX nor the UAW leadership have commented on the offer except to acknowledge their awareness of it, while Tracinda seems to be trying to seize the offer as a potential way to get a foot in the door to the negotiations. What remains to be seen is whether or not the Buyout Committee responds to Tracinda, as the investment company has to date received about as warm a welcome from the unions as it has from DCX management.

The proposal also sheds some light on the negotiation progress. Gettelfinger is expected to plead his case this week to the DCX management to keep Chrysler instead of sell it, which is likely to be a tall order. One of the main reasons that DCX has put Chrysler up for sale has been the obstinacy of the unions in giving concessions for healthcare and benefits. Late in 2006, when the UAW gave concessions to Ford and General Motors (GM), DCX asked for and was refused similar concessions for the Chrysler Group, with the UAW claiming that DCX's overall profitability and health to be sufficient for maintaining the contractual obligations currently in place. DCX management is unlikely to be receptive to any Gettelfinger message that does not come with significant "mea culpas" and the promise of concessions in the next round of contract discussions in the third quarter of this year. Even then, the pressure to separate from Chrysler remains tremendously high among European DCX shareholders, and the idea of not selling Chrysler remains a longer shot than selling it.

Further weight is added to Magna's involvement through the proposal letter by the Ohio workers, who specifically name the Canadian supplier in their communication with Dieter Zetsche. Zetsche himself has said that DCX is not necessarily interested in the highest bidder for Chrysler, but is more concerned with finding the best fit. This may be a way that the UAW can communicate its unofficial position of reluctant acceptance to the idea of a sale to someone, while simultaneously attempting to thwart any possible divestment to a private equity institution which would likely gut jobs at the automaker.