Special Report

UAW logo2007 UAW
Labor Talks

LAS VEGAS – With the ink still wet on Chrysler LLC’s strike-ending tentative contract with the United Auto Workers union, the auto maker confirms here its product plan remains under intensive scrutiny.

Future product promises are a cornerstone of the UAW’s deal with General Motors Corp., ratified Wednesday with two-thirds of the union’s members at GM voting in favor.

But news of the Chrysler agreement, which ended a 6-hour strike, was not followed by the same flood of details about future product, something the auto maker reportedly sought to avoid.

Pending a review by rank-and-file UAW members, a source close to the talks tells Ward’s union negotiators are carefully guarding information about the deal, other than to say it mirrors the GM contract that establishes a fund to finance health-care benefits.

“The tentative agreement includes a memorandum of understanding to establish an independent retiree health-care trust, as well as other changes to the national agreement,” Tom LaSorda, vice chairman and president, says in a statement.

Media reports say Cerberus will have to invest $8 billion-$11 billion to establish such a retiree health-care fund, which was said to be one of the sticking points that sparked the short work stoppage. Chrysler currently has $18 billion in non-funded obligations to cover health-care expenses for retirees.

Another point of contention reportedly was over Chrysler’s desire to manufacture cars outside the U.S. Chrysler recently struck a deal with Chinese auto maker Chery Automobile Co. Ltd. to build B-cars, which are expected to reach U.S. shores by the end of the decade.

Analysts have speculated Chrysler brass was unwilling to ensure long-term production at its U.S. plants, something the UAW reportedly has insisted on.

“Building Chryslers in China is more profitable than building them in Warren (MI). That’s what they’d like to do,” Harley Shaiken, a labor analyst at the University of California at Berkeley, tells Ward’s.

Chrysler is not expected to try to make up the production lost during the brief strike, as the auto maker had a healthy 71 days of inventory in the U.S. at the end of September, Ward’s data shows.

In fact, inventory levels are so high, Chrysler confirmed last week that five of its 10 U.S. assembly plants would be shut down, starting Oct. 9, for a total of eight weeks.

While the UAW has released few details about the tentative agreement, another issue reportedly agreed upon is the 2-tier wage structure Chrysler sought, which would allow it to pay new workers a lower rate.

In return, UAW rank-and-file members reportedly will receive a bonus and job-security provisions.

The tentative contract still has to be presented to Chrysler’s 45,000 UAW-represented workers for ratification.

UAW President Ron Gettelfinger says in a statement the agreement was reached because UAW workers made it clear to Chrysler they needed an agreement that rewards their contributions throughout the years.

Jim Press, the auto maker’s vice chairman and president in charge of product strategy, declines comment on the agreement but says elements of Chrysler’s product plan are “not very efficient.”

“We have vehicles that overlap,” he adds, declining to discuss specifics when asked if the Jeep Compass cross/utility vehicle is in jeopardy.

Sales of the Compass, which launched last year, were down 23% last month compared with September 2006. However, September totals for the Jeep Patriot, which shares its C-segment platform with the Compass, were nearly 50% higher than the Compass results.

Press, who is here with Chrysler CEO Bob Nardelli and other senior executives for meetings with representatives of the auto maker’s 3,700 dealers, says only that he is in the midst of conducting a review of Chrysler’s entire product strategy.

But that doesn’t necessarily mean a reduction in models. Press said last month that Chrysler’s new owners have been given a “ton of money” for product development. Cerberus Capital Management LP acquired Chrysler from the former DaimlerChrysler AG in a $7.4 billion transaction that concluded in August.

Previously, Cerberus also had given its blessing to a $2 billion investment in powertrain development, notes Press, who defected to Chrysler last month following a stellar 37-year career with Toyota Motor Corp.

And he bristles at the notion that his mission is to repair Chrysler, adding its market-share trendline is healthy.

Unlike the downward drift of its cross-town competitors, GM and Ford Motor Co., Chrysler’s share of the U.S. light-vehicle market, year-to-date, is stable at 12.8%, compared with the first nine months of 2006.

Related document: <i>Ward’s</i> U.S. Light-Vehicle Sales by Brand and Group September 2007

Chrysler also is “really good at executing” a game plan, Press says, adding it needs only to refine its focus on customer wants and to empower Chrysler employees to respond accordingly.

Powertrain development is one example where there needs to be greater focus. While Chrysler is at the forefront of diesel and flex-fuel systems, there is room to grow on the hybrid front.

Chrysler will launch its first two hybrid-electric vehicles next year with such versions of the Dodge Durango and Chrysler Aspen fullsize SUVs.

Advancing hybrid technology should not be viewed as a means to improve its corporate average fuel economy, as much as “an opportunity” to provide the customer with a fuel-efficient vehicle that does not compromise desire for performance, Press says.

Press also offers some insight into how Chrysler’s operations under Cerberus will differ from the way it functioned under Stuttgart-based DC. In determining an 80,000-unit fourth-quarter production cut – an action with billion-dollar implications for the auto maker’s bottom line – Press recounts a 7-minute telephone consultation with Cerberus.

When the rollback was proposed to Cerberus, there was speedy agreement.

“It was the right thing to do, and it was done,” Press says, surmising similar discussions under DC would have required “several trips across the ocean.”

Meanwhile, Chrysler shifts responsibility for developing dealer marketing strategies from its sales division to its marketing organization. This will be achieved through a high-level committee of dealer representatives and Chrysler executives.

“We’ll have a very direct link to what’s needed in the marketplace and make sure that we’re coordinated,” says Deborah Meyer, Chrysler’s new chief marketing officer, who joined the auto maker in August, also defecting from Toyota.

“It’s not that anything was bad before. But you can fine-tune it, make it that much more efficient and effective.”

Adds Meyer: “There’s a lot of expertise in the brand and marketing area. I don’t have to come in and say, ‘No one knows what they’re doing.’ They actually really know what they’re doing.”

– with Byron Pope in Detroit