Global Insight Perspective | |
Significance | Chrysler Group announced on Friday (23 February) the first two offers geared towards white-collar workers. This is the first step in the company's overall goal of a reduction in white-collar employee rosters by 2,000 personnel by 2008. |
Implications | By improving the qualifications for full retirement benefits, and indeed keeping those benefits intact, Chrysler has simply sweetened the retirement deal for those nearing retirement age. |
Outlook | The terms are sufficient that Chrysler is likely to meet its goal of 1,000 white-collar personnel gone by 30 June, with an additional 1,000 by 2008. Blue-collar offers are expected this week, and it should prove interesting to see how the union reacts. |
Chrysler Group announced on Friday (23 February) the first separation incentives for its white-collar workforce, aimed at getting 1,000 personnel to leave the company by 30 June 2007. The buyouts are part of Chrysler's turnaround plan to eliminate 13,000 overall positions, including 2,000 white collar positions by 2008. The first round of buyouts will be for white-collar employees who are at or near retirement age; blue-collar buyout plans will be announced later this week, according to Chrysler officials.
The plan announced last week comprises two offers. The first is the Separation Incentive Program which is geared towards workers at retirement age (62 years and older) and who have been employed at the company for at least 10 years as of 31 May 2007. This offer involved three months of salary and the choice of a US$20,000 voucher for a new vehicle or the same amount in contribution to the employee's retirement healthcare savings account. The employee will receive full contributions to retiree healthcare benefits through age 64 and then full contributions to healthcare retirement accounts at age 65, terms which are normally reserved for workers with 30 years of service. These offers are scheduled to be delivered on 7 May, with a due date and effective retirement date of 31 May.
The second offer is for younger workers, aged 53-61 as of 30 June 2007. The Special Early Retirement (SER) programme also requires that the employee made less than US$100,000 last year and has at least 10 years of service. These employees will receive full retirement benefits instead of reduced benefits (typical for an early retirement under normal circumstances). Like the other offer, the employee will receive full contributions to retiree healthcare benefits through age 64 and then full contributions to healthcare retirement accounts at age 65. The SER programme will be offered on 4 June, due back on 29 June, with retirements mandated by 30 June.
The Latest Sale News
While the buyout offers were announced in accordance with Chrysler's turnaround plan, a parallel effort to sell the division is also under way. News service Reuters reports that a very detailed financial prospectus is being crafted for potential buyers, but that the report will be kept very confidential so as to avoid an all-out auction for the beleaguered carmaker. At least four private equity funds have been in contact with DaimlerChrysler (DCX) regarding a possible sale according to the Financial Times, including Apollo Management LP, the Blackstone Group, the Carlyle Group, and Cerberus Capital Management LP, as well as several European firms. Joining the list of those uninterested is Volkswagen (VW), which has publicly joined Renault-Nissan, Hyundai, and Fiat in expressing specific disinterest in any acquisition of Chrysler.
Outlook and Implications
The white-collar buyout packages seem decent, and true to Chrysler CEO Tom LaSorda's original claim, are much more oriented towards early retirement than any sort of mass general separation, as has is being seen across town at Ford. Chrysler is unlikely to have difficulty in reaching its goal of reducing its white-collar workforce by 1,000 personnel in 2007, as the buyouts should push employees nearing retirement age into getting out while the getting is good; it is highly unlikely that a better offer from the company to retire is going to come after this.
Indeed, if a sale of Chrysler Group is in fact imminent, it maybe be the perfect opportunity for someone contemplating retirement to part ways with the company. Unlike other buyout offers, there is no discontinuation of benefits, and in fact, the plans make the institution of benefits actually easier by reducing the required employment time threshold significantly. There should be no reason why Chrysler cannot hit its attrition goals based upon the plan involved; the blue-collar plans coming this week should prove more interesting and challenging, given the union that Chrysler has to attempt to appease.
As regards the sale talk, numerous hedge funds and private equity firms have expressed interest in Chrysler, but whether they would run the company as a whole entity or simply flip pieces and parts of it to be sold off at leisure remains to be seen. Conventional thinking puts the mindset of the German executives at keeping the organisation together, but considering the US$16 billion unfunded pension liability, it may be more feasible to sell the company's assets or brands off individually.