Thursday, April 16, 2009

Chrysler's Survival Hinges on Unions, Fiat Partnership

The U.S. and Canadian governments have indicated to Chrysler that it needs to reach a partnership deal with Italian carmaker Fiat in order to receive government financing. Chrysler's ability to do that, however, depends on concessions it can obtain from auto workers' unions.

Canada's Industry Ministry Tony Clement urged the CAW union to agree to a $19 an hour reduction in labor costs, the amount Chrysler says is necessary to be competitive with Japanese and German car manufacturers. Fiat's executives have tied approval of any partnership with Chrysler to its labor competitiveness.

Chrysler and the CAW previously agreed on a $7 an hour cut in labor costs, but with the imminent threat of Chrysler going into bankruptcy or liquidation, the stakes and demands have been raised much higher. The proposed $19 an hour cut would make Chrysler competitive with foreign automakers and non-unionized plants in Canada.

Chrysler has until April 30 to complete a deal with Fiat in order to be eligible for government help. Chrysler has received $4 billion from the U.S. government so far and several hundred million from the Canadian government, and would be eligible for another $6 billion from the U.S. government if the Fiat deal materializes.

1. What is the primary obstacle to Chrysler's (and GM's) profitability? Labor costs, product line, management?

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